[Editorial] Samsung’s surprise earnings

Samsung Electronics, the indisputable market bellwether in South Korea, tends to affect investor sentiment strongly. This fact was well demonstrated Friday when its better-than-expected second-quarter earnings prompted investors to cheer, which in turn helped the Kospi close higher.

Samsung said in a regulatory filing Friday that it expects operating profit for the April-June period to reach 10.4 trillion won ($7.5 billion), up 1,452 percent from 670 billion won a year ago, helped by the recovery in memory chip prices amid the explosive demand for artificial intelligence worldwide.

It is the first time that Samsung posted an operating profit of 10 trillion won or over since the third quarter of 2022, when it logged 10.8 trillion won. The second-quarter operating profit is higher than the company’s full 2023 figure of 6.5 trillion won.

Samsung shares closed up 3 percent to an over two-year high of 87,100 won on Friday, as investors welcomed its earnings surprise. No. 2 chipmaker SK hynix also ended up 2.6 percent to 236,000 won, while other chip equipment makers closed higher on the strength of broad optimism about the semiconductor sector.

Samsung, the world’s largest memory chipmaker, said that revenue increased 23.3 percent to 74 trillion won for the second quarter. The company did not disclose the data for its net earnings in the guidance.

Analysts said Samsung’s 15-fold increase in its operating income reflects hikes in the prices for DRAM and NAND flash memory. And the demand for Samsung’s high bandwidth memory, or HBM, increased. This high-performance DRAM is used for US-based Nvidia’s graphics processing units, a key component for AI computing.

Korea’s current account surplus recorded $8.92 billion in May, marking the highest level in 32 months, data showed Friday. The positive turn came as exports expanded 11.1 percent on-year to reach $58.95 billion on the back of strong demand for semiconductor products.

Samsung’s strong earnings, especially from its brisk sales of chips, upbeat investor sentiment and current account surplus all combine to raise expectations about the Korean economy in general.

But experts warn that it is too early to conclude that Samsung’s chip business will sail forward without hitting an obstacle in the global chip market where AI-related technology is advancing at a dizzying pace.

Samsung’s second-quarter earnings were driven by demand for its HBM products and higher-capacity solid-state drives. But Samsung is yet to mass-produce the fifth-generation HBM3E chip, which is currently undergoing quality tests by Nvidia.

Samsung is still trying to catch up with SK hynix, which began to provide the fifth-generation HBM3E chip used in AI chipsets to Nvidia in March after succeeding in mass production. SK hynix is currently leading the AI semiconductor market.

There is no question that Samsung retains its leadership in the DRAM market, but the company has yet to firm up its competitiveness in the next-generation AI chip market. As the AI chip market undergoes rapid changes and innovation, a slight misstep in the fierce development race could backfire in terms of missed contracts and lost revenue.

Samsung is also required to bolster its foundry business. In the fourth quarter of last year, Samsung’s share in the global foundry business was 11.3 percent. The share of Taiwan’s TSMC was a whopping 61.2 percent over the same period.

Chip manufacturing is fundamentally a costly business. Since a massive amount of investment is constantly needed to stay ahead, chip manufacturers including Samsung tend to reinvest the bulk of what they earn in the development of next-generation chips. Given that Samsung had suffered a loss of nearly 15 trillion won in its semiconductor division due to the slump in memory chip prices last year, it remains to be seen whether Samsung can stay strong beyond the second quarter by securing the leadership in the next-generation AI chip market.