Samsung second-quarter operating profit soars 1,458% as AI demand remains strong; results top estimates

Samsung Electronics on Wednesday reported higher-than-expected second-quarter revenue and operating profit, as demand for its advanced memory chips that are crucial for artificial intelligence training remained strong.

Here are Samsung's second-quarter results versus analysts' average estimates according to LSEG.

Samsung's revenue for the quarter ended June jumped 23.42% from a year earlier, while operating profit soared 1,458.2%.

The South Korean giant said robust demand for high-bandwidth as well as conventional memory, such as regular dynamic random access memory, from customers expanding AI investments contributed to the strong performance.

For the second half, Samsung said it expects the demand from server AI to stay strong across server products including HBM, server DRAM and SSD. SSD, or solid-state drive, refers to a semiconductor-based storage device.

The firm added that expanding capacity to meet demand for HBM and server DRAM could further constrain supply of conventional memory chips.

During its earnings call, the firm said it plans to address the AI demand by expanding sales of HBM3E —the latest AI memory product — through capacity expansion in the second half.

It will also expand sales of SSDs which are currently in high demand for AI servers as well.

The firm also said it would pay out a dividend of 361 won per common and preferred share for the second quarter.

"According to our current dividend policy, the total amount distributed per quarter amounts to approximately 2.45 trillion won, which will be paid near the end of August."

Samsung shares rose as much as 1.35% Wednesday morning.

HBM memory chips are crucial for AI chips – which have seen a huge demand enabled by the AI boom. This has largely benefitted firms such Samsung Electronics and SK Hynix, the top two memory chipmakers in the world.

"With memory's average selling prices expected to continue their uptrend for next several quarters we foresee a quarterly sequential profit growth for Samsung Electronics until 2025," CLSA said in a report earlier this month following Samsung's second-quarter forecasts.

Business for the world's largest memory chip maker rebounded as memory chip prices recovered on AI optimism last year. The South Korean electronics giant saw record losses in 2023 as the industry reeled from a post-Covid slump in demand for memory chips and electronics.

"After Nvidia and global chip makers announced an AI semiconductor roadmap recently, we foresee a memory price hike trend until 1H25. We attribute this to greater concerns about memory supply amid robust demand for HBM and high density enterprise SSD, which use more wafers, with increased production lead time," SK Kim of Daiwa Capital Markets said in a report last month.

Samsung reportedly has cleared the tests for the use of its HBM3 chips in Nvidia processors for the Chinese market. SK Hynix has so far led the HBM memory chip market, having been the sole supplier of HBM3 chips to Nvidia.

SK Hynix on Thursday logged its highest quarterly profit since the second quarter of 2018, rebounding from a loss of 2.88 trillion won in the same period a year ago.

Smartphone sales declined in the second quarter largely because of the "base effect of launches of new models" in the first quarter. However, the Galaxy S24 series continued to see strong demand, Samsung said.

"Smartphone demand decreased sequentially in the seasonally weak quarter, particularly in the premium segment," the company said, adding that it expects the premium segment to grow in the second half though the mass segment would likely see a slowdown.

Profitability in the smartphone business also dropped as prices of key components rose.

The firm plans to continue pushing its premium Galaxy AI products. In its latest move, Samsung announced last week global availability for its newest Galaxy devices including Galaxy Z Fold6, Z Flip6, Watch Ultra and Ring.

"Even in challenging circumstances, we will continue investing in upgrading Galaxy AI functionality in order to secure a long term sustainable growth engine," Samsung said on Wednesday.

Counterpoint Research said Samsung should see "greater uptick to its operational performance" in the second half, mainly driven by memory chips and a "premiumisation" trend of smartphones.

"SK Hynix and Micron though will continue to challenge Samsung in memory both in the AI segment with HBM growth and in the AI smartphone and PC market as well with close tie-ups and optimizations with key compute players such as Qualcomm, Intel and Nvidia," Neil Shah, research vice president at Counterpoint Research, said in emailed comments to CNBC.