On Friday, April 5, Samsung Electronics released a forecast according to which the company’s operating profit for the first quarter of the current year will show growth in the form of a multiple increase in the corresponding indicator compared to the result for the same period in 2023.
The optimistic vision of the dynamic of the future commercial figures of the mentioned firm is because there is currently a trend of a steady recovery in the price of chips after a period of significant downturn. The current situation in the microcircuits market is due to the so-called artificial intelligence boom, which implies a large-scale global interest in digital thinking systems. Chips are needed for the training and subsequent functioning of AI models.
It is worth noting that Samsung’s assessment of its own prospects in terms of commercial performance significantly exceeds those expectations that are fixed in the market. Over time, it will become known which vision of the future is more consistent with the final results. It is worth noting that partially the preliminary assessment of Samsung’s commercial performance is based on the dynamic sales of its products in early 2024.
Remarkably the company’s more than optimistic forecast regarding the financial component of its activities did not become a factor in the positive impact on the price of securities. Samsung shares showed a decline of 1.3% on Friday. This means that investors were not very enthusiastic and did not perceive the company’s profit expectations for the first quarter through the prism of optimism. Such a reaction has an explanation. Currently, investors are focused on ensuring that Samsung makes progress in the business of producing high-end memory chips in the foreseeable future. The company lags behind its competitors in the context of the mentioned activity. From the point of view of the long-term prospects, the current state of affairs without positive changes can significantly weaken Samsung’s market position and, accordingly, become a factor of negative impact on financial performance.
One of the world’s largest manufacturers of televisions and memory chips, according to preliminary calculations, said that its operating profit for the first quarter of 2024, which ended March 31, amounted to 6.6 trillion won ($4.89 billion). This result exceeds the forecast of LSEG Smartstimate, which provided that the mentioned indicator would be fixed at 5.7 trillion won.
The preliminary calculation of Samsung’s operating profit indicates that the corresponding figure grew by 931% year-on-year. In the first quarter of 2023, the company’s similar commercial result amounted to 640 billion won. It is worth noting that the manufacturer’s operating profit for the first three months of this year is the highest since the third quarter of 2022.
Samsung’s preliminary calculations also indicate that its revenue in the period from January to March 2024 increased by 11% compared to the first quarter of last year. In this case, the monetary equivalent means an indicator equal to 71 trillion won. It is worth noting that the company’s preliminary revenue in a negative sense did not coincide with the expectations of LSEG, which predicted that the corresponding figure would be fixed at 72.3 trillion won.
Park Sung-soon, an analyst at Korea Investor Relations Service, says that the specified indicator based on the results of the initial calculations is largely in line with expectations. Also in this context, it was noted that the preliminary operating profit exceeded forecasts. Moreover, Park Sung-soon noted that the valuation of inventory NAND may have improved, underlined that, with a high degree of probability, the demand for products of the corresponding category has increased, increasing its profitability.
Another significant factor that had a positive impact on Samsung’s commercial performance in the first quarter of 2024 was the debut of smartphones of the new Galaxy S24 line, which took place in January. Artificial intelligence has been integrated into this development. This fact has become a kind of catalyst for consumer demand for new Samsung products. Currently, the use of AI is scaling up in many manufacturing sectors and other segments of the economy, but in the smartphone market, advanced technology is not yet a standard component of the average device, which is why nowadays applying artificial intelligence in the specified space continues to be what can be described as a distinctive feature. At the same time, it should be mentioned that almost every owner of a modern mobile phone has access to third-party AI apps. The vector of the current trends in the technology sector indicates that, with a high degree of probability, smartphones with artificial intelligence will fall into the category of standard widespread products shortly.
Eugene Investment & Securities estimates that Samsung shipped 57 million mobile phones to the global market in the first quarter of 2024. This figure is 8% higher than the result for the last three months of 2023. The average cost of Samsung smartphones in the first quarter of the current year probably increased by 30%, amounting to $340. In this case, an increase in the indicator is implied compared to the period from October to December 2023.
Global sales of Galaxy S24 smartphones increased by 8% in the first three weeks after the start of the corresponding commercial process. In this case, it means comparing with the result of the Galaxy S23 for the same period last year. The relevant information was made public by the Counterpoint data provider.
Samsung plans to release its earnings totals for the first quarter of 2024 on April 30.
According to preliminary information, the company’s chip manufacturing unit will report its first profit in five quarters at the end of the current month. Traditionally, this segment of Samsung’s functional structure demonstrates the best financial results. The profit for the first three months of 2024 is expected to be based on the fact that the cost of memory chips has begun to recover after a significant drop that began in mid-2022. The mentioned negative situation has formed against the background of the downturn in demand for gadgets after the end of the coronavirus pandemic.
During the first quarter of the current year, the cost of DRAM chips globally increased by about 20% compared to the figure observed between October and December 2023. Microcircuits NAND flash has risen in price by 23-28% in the first three months of this year. The relevant information was published by the TrendForce data provider.
Currently, there is a widespread optimistic vision of the prospects for the dynamic of the global memory chip market among manufacturers, investors, and experts. Currently, there is also a significant increase in consumer demand for microcircuits such as high-bandwidth memory (HBM). These products are used in artificial intelligence systems. Against the background of the mentioned sentiment regarding estimates of the near future of the global memory chip market, Samsung’s share price has increased by 34% over the past 12 months, even though investors continue to expect progress within the company’s relevant business. It is worth noting that the average rise in the price of securities of manufacturers of microcircuits of the specified category was 10%.
In the sphere of memory chip making, Samsung is still losing ground to its main competitor SK Hynix. This position ratio is especially relevant in the context of HBM production. To a certain extent, Samsung’s lag is because the company started the history of its presence in the market of the mentioned products relatively late. At the same time, the firm has positive prospects.
Samsung plans to start shipping the latest and most powerful HBM chips in the third quarter of 2024. The implementation of this intention may significantly improve the company’s market position.
Kim Roko, an analyst at Hana Securities, says that Samsung is working hard on HBM, but so far there is no concrete result in this activity. The expert noted that the full-fledged manufacturing of the mentioned products allows the company’s competitors to demonstrate more significant results.
Kim Roko says that it may be difficult to increase the market share of the specified chips because production of the 8-layer HBM3E is currently underway, but so far no firm has approval for making a 12-layer version, which is expected to debut towards the end of 2024. According to the analyst, Samsung has the potential to eliminate the backlog of competitors and become the leader of the manufacturing segment with the help of more advanced products.
The 7.2 magnitude earthquake that occurred in Taiwan this week is likely to cause a decrease in the supply of semiconductors. Against this background, Samsung and SK Hynix will likely increase the cost of their memory chips at a higher rate than originally planned. If this assumption turns out to be correct, Samsung and SK Hynix’s pricing policy will help improve their commercial results in the second quarter of 2024.
As we have reported earlier, Apple Passes Samsung as World’s Top Phone Maker.
