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Samsung Electronics Q3 Operating Profit Exceeds Expectations, Signals Memory Chip Recovery

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Samsung Electronics, the world’s largest dynamic random-access memory (DRAM) chip maker, reported better-than-expected third-quarter operating profit results, indicating a potential recovery in the memory chip market. Despite a 77.6% decline in operating profit compared to the previous year, the company experienced a significant jump of 262.6% from the second quarter. This positive development suggests that the memory chip glut may be reaching its bottom.

Strong Q3 Performance

Samsung Electronics announced a third-quarter operating profit of 2.43 trillion Korean won, surpassing analyst estimates of 2.3 trillion Korean won. Although the company’s revenue for the quarter fell 12.2% from the previous year, the significant improvement in operating profit from the previous quarter is a promising sign for the industry.

During its earnings call, Samsung acknowledged the uncertainties that persist in the market, including geopolitical risks and ongoing customer inventory adjustments. However, the company expressed optimism about gradually stabilizing and improving demand, supported by recovering consumer sentiment, easing inflation, and major customers introducing new products, particularly in the PC and mobile segments.

Memory Chip Demand Outlook

Samsung anticipates a pickup in memory chip demand in the fourth quarter driven by year-end promotions, new product launches from major customers, and strong demand for generative artificial intelligence (AI). Large language models like ChatGPT require high-performance memory chips to generate human-like responses by remembering details from past conversations and user preferences.

The company highlighted that it has received numerous purchase inquiries as the industry reaches a bottom following production cuts. Samsung is expanding sales of advanced-node products, such as double data rate 5 synchronous dynamic random-access memory (DDR5) and flash storage for the 5G era (UFS4.0), to meet the demand for high-performance chips.

Market Recovery and Growth Potential

While global smartphone sell-through volumes declined by 8% year-on-year in the third quarter of 2023, signaling a slower-than-expected recovery in consumer demand, the market experienced a 2% quarter-over-quarter growth due to a positive performance in September. This growth indicates a potential market recovery on the horizon.

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Analysts expect Samsung’s earnings to rebound in the fourth quarter, driven by further product mix improvement, expanding sales of high-bandwidth memory 3 (HBM3), and a memory price hike. The company’s ability to supply high-performance DRAM chips and HBM3 to U.S.-based chip designer Nvidia positions it to take advantage of the booming demand for AI chips.

Samsung’s Strategic Moves

To address the growing demand for generative AI, Samsung plans to increase its sales of HBM3 and HBM3E, leveraging its position as the industry’s largest production capacity. The company aims to supply HBM3 to Nvidia starting from the fourth quarter of 2023 and expand its supply in 2024. Additionally, Samsung Electronics is expected to supply HBM3P, targeting next-generation AI graphics processing units (GPUs) from mid-2024.

With an intact view of meaningful profit recovery in the coming quarters, Samsung anticipates positive trends driven by larger industry-wide production cuts, improving demand, and a shift towards high-average selling price products like DDR5.

Conclusion

Samsung Electronics’ better-than-expected third-quarter operating profit results indicate a potential recovery in the memory chip market. Despite a year-on-year decline, the substantial improvement from the previous quarter suggests that the industry may be reaching its bottom. With increasing demand for generative AI and the company’s strategic moves to expand sales of advanced-node products, Samsung is well-positioned to capitalize on the growing opportunities in the market.

As uncertainties persist, Samsung remains cautiously optimistic about the market’s recovery, driven by factors such as geopolitical risks, demand rebound, and ongoing customer inventory adjustments. With its strong presence in the memory chip industry and commitment to innovation, Samsung Electronics continues to play a significant role in shaping the future of the semiconductor market.

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