Key Takeaways
- Samsung Electronics is set to report a nearly nine-fold increase in Q3 operating profit.
- Despite moderating chip prices, the company is expected to post an operating profit of 106.1 trillion won.
- Chip margins may remain flat, raising concerns about the sustainability of AI spending.
Samsung Electronics is expected to report a significant increase in its third-quarter operating profit, jumping nearly nine-fold from the previous year. The company is anticipated to post an operating profit of 106.1 trillion won ($79.1 billion) for the July-September quarter, marking its fourth consecutive quarter of record operating profit.
The surge in profits is attributed to robust demand for AI infrastructure, which has outpaced supply growth. Analysts, however, have cut their profit forecasts by nearly 8% since the end of August, reflecting concerns over moderating chip prices and a strengthening South Korean won.
Despite the expected increase, the pace of price increases in memory chips has slowed, leading to questions about the durability of the AI spending boom. The LSEG SmartEstimate, based on forecasts from 21 analysts, has been slashed by 7.7% since the end of August.
TrendForce, a research firm, expects conventional DRAM contract prices to rise by 10% to 15% in the fourth quarter, down from a second-quarter surge of roughly 60%. Avril Wu, senior vice president for research at TrendForce, noted, 'Although the market remains in a tight supply position, the pace of price growth is expected to decelerate.'
Samsung will provide preliminary Q3 results on Thursday, with detailed data to be released in late October. The company is also facing growing competition from Chinese rivals, which are benefiting from the AI-driven memory shortage, despite being concentrated in lower-end products.
Higher chip prices have pushed up the cost of smartphones and consumer electronics, potentially weighing on demand. Long-term supply deals between chipmakers and customers have limited price gains in exchange for guaranteed supply. SK Securities analyst Han Dong-hee estimates that Samsung’s memory-chip operating profit margin is expected to reach 76% in the third quarter, flat with the preceding quarter.
Samsung has aimed to secure long-term contracts covering about two-thirds of its memory output, joining rivals in efforts to reduce exposure to the industry’s boom-and-bust cycles. US rival Micron expects its gross margin to slip to 86.3% in the current quarter, from 87%, partly due to employee compensation costs.
The moderation in memory prices is being closely watched by investors, who have experienced a more than one-year-long rally fuelled by AI-driven demand. This rally has propelled the world’s largest memory producers, including Samsung, SK Hynix, and Micron, to record profits and margins.
