Samsung expects memory chip demand to improve, as working profit beats expectations

South Korea’s Samsung Electronics described Tuesday quarterly running financial gain that was greater than anticipated irrespective of dropping 77.6% from a calendar year ago.

Though it was a drop year-on-calendar year, third quarter working earnings jumped 262.6% from the next quarter, signaling that a memory chip glut may perhaps be bottoming out. Initially quarter working financial gain plummeted 85.15% from the fourth quarter of 2022, while 2nd-quarter running gain noticed only 4.68% improvement from the first quarter.

Right here are Samsung’s 3rd-quarter effects compared to estimates:

• Income: 67.4 trillion Korean gained (about $50 billion), vs. 67.8 trillion Korean received expected by analysts polled by LSEG.
• Working profit: 2.43 trillion Korean received, vs. 2.3 trillion Korean won anticipated by LSEG analysts.

Samsung’s revenue for the quarter ending September fell 12.2% from a 12 months back, even though functioning income dropped 77.6% in the similar period.

Previously this month, Samsung estimated 3rd-quarter revenue would be 67 trillion Korean gained and running earnings to be 2.4 trillion gained.

The South Korean chip big is the largest dynamic random-access memory chip maker in the planet. Its memory chips are located in buyer equipment these types of as smartphones and computers.

“In the fourth quarter, uncertainties persist with regards to the market’s restoration pushed by wars and geopolitical pitfalls, gradual demand from customers rebound and ongoing client stock adjustments,” claimed Samsung in the course of its earnings get in touch with on Tuesday.

“Even so, we’re observing preliminary indications of demand, step by step stabilizing and strengthening, supported by recovering shopper sentiment, easing inflation and key customers introducing new products, specially in the Personal computer and cell segments,” Samsung reported.

On the outlook for memory need, Samsung said it expects fourth quarter demand to choose up with calendar year-stop promotions, new item launches by its main customers as well as solid demand from customers for generative AI.

Massive language products this kind of as ChatGPT require a large amount of superior-performance memory chips, which permit these types of generative AI versions to remember information from earlier conversations and consumer choices in get to make humanlike responses.

In a press launch ahead of its earnings contact, Samsung stated that it “been given various acquire inquiries amid widening awareness of the market reaching a bottom, subsequent the industry-huge output cuts.” It additional that it continued to broaden sales of sophisticated-node products.

These innovative-node products and solutions incorporate DDR5 — double info fee 5 synchronous dynamic random-obtain memory, and UFS4. — flash storage for the 5G period.

“Our look at on a meaningful financial gain restoration for the future several quarters led by memory is intact, with the larger sized field-extensive manufacturing cuts, little by little bettering need traits, as nicely as combine improvement in the direction of significant-typical selling rate products and solutions this sort of as DDR5,” said Goldman Sachs in an Oct. 12 report.

The expense company maintained a “buy” rating with an unchanged target price of 93,000 won. Samsung shares were down .30% at 67,100 won on Tuesday early morning.

World smartphone offer-via volumes fell 8% year-on-yr in the third quarter of 2023, the ninth consecutive quarter to document a decrease, according to Counterpoint Exploration. This was largely mainly because of the slower-than-predicted recovery in purchaser need.

Smartphone and Computer maker ended up grappling with surplus inventories of memory chips after stockpiling to fulfill amplified demand from customers for consumer devices for the duration of the pandemic. Inflation has prompted shoppers to rein in shelling out and reduce again on buys of consumer devices, driving down desire and charges for memory chips.

But the market grew 2% quarter-about-quarter bolstered by a good general performance in September, signaling a market recovery forward.

“We be expecting earnings to rebound from 4Q23, provided more item blend enhancement on growing revenue of superior-bandwidth memory 3 and a memory cost hike,” claimed SK Kim, analyst at Daiwa Funds Markets, in an Oct. 3 be aware.

“For memory, we presume a significant narrowing of losses because of to a even more product combine enhancement and reversal of inventory generate-down from the memory rate recovery. For show, we anticipate a more earnings enhancement on expanding source of OLED panels for Iphone 15 versions,” claimed Kim.

Samsung explained that it will be increasing its sales of innovative-node products and solutions to fulfill desire for high performance chips in generative AI.

“We will actively tackle demand from customers for generative AI by increasing our HBM3 and HBM3E part of income on the back of the biggest creation capability in the sector,” Samsung explained Tuesday, referring to the upcoming generation memory processors with substantial bandwidth memory.

Regional media claimed that Samsung is expected to offer high-functionality DRAM chips and HBM3 to U.S.-centered chip designer Nvidia. Nvidia’s shares have surged 187.54% calendar year-to-date thanks to booming demand for its AI chips.

Kim of Daiwa Money stated they count on “increasing prospects relevant to AI need in 2024” for Samsung.

“In addition to giving HBM3 to Nvidia starting off from 4Q23 and increasing supply in 2024, we count on that Samsung Electronics will offer HBM3P, targeting following-gen AI GPUs from mid-2024,” mentioned Kim in an Oct. 3 observe.