Samsung Estimates 100 Million Won In Q4 Profits
Samsung Electronics estimates that its quarterly profits will reach a record 100 trillion won, making it the first tech company in the world to reach that milestone. This figure reflects a ninefold jump in the third quarter, driven by soaring demand for AI chips.
Samsung is the world's largest memory chipmaker and estimates its Q3 profits to be 107.4 trillion won ($80.17 billion), slightly higher than the 106.1 trillion won forecast by LSEG analysts. This is the fourth straight quarter for the electronics manufacturer, underscoring the global chip shortage. The supply of semiconductor chips is not on par with the rapidly increasing AI investments, causing chip prices to soar and effectively increasing profits for chipmakers like Samsung.
Samsung and Micron both expect this outpacing of AI investment and chip supply to continue for another two years. However, intensifying competition from China and a potential drop in AI spending could lower long-term earnings.
Interestingly, Samsung’s shares dropped 0.2% despite this record forecast. The company's shares have dropped over 25% since a record high in June as concerns surrounding the longevity of the AI boom plague investors.
The chipmaker’s profit estimates are higher than analysts’ projections because market analysts are trimming their forecasts, citing the sharp appreciation of the South Korean currency. As the won appreciates, the value of dollar-denominated overseas sales decreases when converted into local currency.
Industry observers project Q4 profits to grow 8.2% from the previous quarter. This would be a 20% drop from the sequential quarterly growth of the third quarter, as chip prices are falling. Market researchers are predicting that the conventional DRAM contract prices will rise 10-15% in Q4 compared to the quarter ended June 30, a significant drop from the 60% growth rate in Q2.
After a year-long rally pushed profit margins of chipmakers like Samsung, Micron and SK Hynix to record highs, a slow decline is being monitored closely by investors.
Samsung also said that third-quarter revenue is likely to rise 127% to 195 trillion won, compared to the same period last year. The majority of this revenue jump is due to improving memory chip sales. Chip prices have risen as the supply of conventional DRAM and NAND chips is thinning and due to the growing demand for high-bandwidth memory (HBM), which is necessary to process vast amounts of data for AI applications.
It is worth noting that as the demand and price of memory chips skyrocket, it poses a challenge to Samsung’s smartphone and consumer electronics business, as component costs are also rising. In the previous quarter, Samsung's mobile business recorded a loss of over $1 billion, much more than predicted. On the other hand, the company’s contract chipmaking continues to be a loss-making venture due to fixed costs and still-low utilisation rates.
However, analysts believe that utilisation is likely to improve over the next several months as demand for advanced manufacturing processes is gaining traction. Samsung aims to compete in the same league as industry leader TSMC in advanced contract chip manufacturing.
Investors will also closely observe the company’s shareholder return policy, which will be announced at the earnings call in late October. In August, Samsung’s shares dropped over 8% after its record $79 billion shareholder-return plan disappointed investors, who were expecting a larger portion of its AI profits. Investors also sought more clarity on share buybacks.
The company said that this year's shareholder returns would be between 90 trillion won and 110 trillion won, including 30 trillion won in cash dividends in the third quarter. Samsung will also continue to commit 50% of free cash flow accumulated over the last three years to shareholders, under its 2024 to 2026 shareholder return policy.
