As several major U.S. tech stocks have experienced a downturn, Samsung's recent financial report stands out, showcasing impressive growth. In the second quarter of this year, driven by soaring chip prices, Samsung's operating profit surged nearly 15 times compared to the previous year, with strong demand for AI-driven chips expected to continue in the second half of 2024.
On July 31, Samsung Electronics released its Q2 2024 financial results, reporting sales of 74.07 trillion Korean won, a net profit of 9.64 trillion won, and an operating profit of 10.44 trillion won. The company noted that sales of server-centric products, such as HBM and DDR5, expanded significantly, reflecting its proactive response to the rising demand for high-value products in AI server markets. This marks Samsung's highest operating profit since Q3 2022.
Previously, the company faced struggles in its chip division due to weak post-pandemic demand for electronics. However, the resurgence in AI interest has transformed its chip sector back into a major revenue generator. Samsung’s business segments include Semiconductor Device Solutions (DS), Mobile Experience (MX), and Networks, with semiconductor performance being a crucial determinant of overall financial results. The semiconductor division achieved an operating profit of 6.45 trillion won, a significant recovery following a 1.91 trillion won profit in Q1 2024.
Despite this rebound, Samsung's semiconductor division faced an annual loss of 14.9 trillion won in 2023, primarily due to weak demand for chip equipment post-pandemic. Consequently, Samsung's total operating profit for the year declined by 84.86% to 6.6 trillion won, marking the first time since the 2008 financial crisis that annual profits fell below 10 trillion won. For Q2 2024, Samsung attributes its improved performance to AI chip demand, with expectations that AI servers will capture an even larger market share as cloud service providers and enterprises boost their investments in AI.
Industry expert Lee Guoqiang explains that the significant profit increase in Q2 stemmed from the low memory prices last year. Samsung had implemented a strategy focused on profit retention by regulating production capacity. As market demand recovers, Samsung has raised memory product prices multiple times throughout the year, fueling remarkable revenue growth. According to TrendForce, DRAM prices rose by 13% to 18% in Q2, while NAND Flash prices increased by 15% to 20%. Additionally, the AI boom has visibly influenced HBM prices.
Recent reports also indicate that Samsung's fourth-generation high-bandwidth memory chip, HBM3, has received approval from Nvidia for use in its processors, potentially disrupting the market position of its rival SK Hynix. Furthermore, insiders predict the next-generation product, HBM3E, will receive certification within the next 2 to 4 months. Analyst Mark Li from Sanford C. Bernstein noted that although Samsung is slightly late to the game, the HBM3E opportunity remains open, with Nvidia expected to utilize the chip across most of its products until 2025, followed by other competitors by 2026.
In a significant development earlier this year, OpenAI CEO Sam Altman met with Samsung Group Chairman Lee Jae-yong to discuss collaboration on AI chips. Prior to this, he had secretly met with executives from both Samsung Electronics and SK Hynix and toured Samsung’s core semiconductor factory in Pyeongtaek.
While the chip division is thriving, Samsung's smartphone sector has quietly seen a decline in sales. The Device Experience (DX) division reported sales of 42.07 trillion won, with operating profits at only 2.72 trillion won—down from previous figures. Sales for the mobile experience (MX) sector, which includes smartphones, have decreased quarter-over-quarter. Samsung attributes this drop partly to the base effect of new model launches in Q1, but maintains that demand for the Galaxy S24 series remains robust.
Due to rising prices of key components, the profitability of the smartphone business has also faced challenges. Samsung noted, “Smartphone demand declined quarter-over-quarter due to seasonal softness, particularly in the premium market.” However, they emphasize that the Galaxy S24 series has achieved double-digit year-over-year growth in both units sold and revenue in Q2 and the first half of the year, underlining the series' ongoing success.
Market research firm IDC projects that AI smartphones will serve as the next growth engine following the 5G expansion and the rise of foldable smartphones, anticipating that AI smartphone shipments will account for 19% of the overall market by 2024.
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