Samsung Electronics Sees Demand for AI Chips Holding Steady Amid Tightening Supply

In the highly competitive global memory chip market, Samsung Electronics is finding stability in the demand for artificial intelligence (AI) chips. Despite a challenging market, Samsung reported a significant increase in operating profit for the first quarter of the year, causing its shares to rise by 1.8%. However, the company is facing tough competition from smaller rivals like SK Hynix in supplying high-end chips to AI leader NVIDIA.

To catch up with its competitors, Samsung has begun mass production of 8-layer high bandwidth memory (HBM3E) chips used in generative AI chipsets. It aims to make these HBM3E products account for two-thirds of its HBM output by the end of the year. This aggressive goal is seen as a positive move by analysts, who believe it will help Samsung improve its market position.

Samsung’s rival, SK Hynix, has been the sole supplier of HBM3 chips to NVIDIA and has benefited greatly from the AI boom. However, with Samsung’s increased production and potential partnership with NVIDIA, the dynamics of the market could change. According to Jeff Kim, head of research at KB Securities, NVIDIA may start sourcing 12-layer products from Samsung and most 8-layer products from SK Hynix due to their respective technological advantages.

Samsung’s focus on AI-related chips is driven by the growing demand for AI technologies. The company expects high-end solid-state drive (SSD) offerings to increase in order to meet the demand for AI servers. Additionally, Samsung foresees a tightening supply of high-end memory chips by the end of the year, as SK Hynix overtakes them in HBM chip production.

Despite the overall downturn in the memory chip market, Samsung’s revenues have increased by 13% to 71.9 trillion won ($52.14 billion). Its operating profit has also seen a significant jump from 640 billion won to 6.6 trillion won in the first quarter. This marks Samsung’s highest operating profit since the third quarter of 2022.

In the past, Samsung’s chip division accounted for two-thirds of its operating profit. However, in the March quarter, the chip division swung to a profit of 1.91 trillion won from a loss of 4.58 trillion won in the previous year. This is the first time the division has seen a profit since 2022. The increase in revenue is largely attributed to the rise in sales of NAND flash chips for data storage, which increased by 23% to 28% compared to the previous quarter. DRAM chips also experienced a 20% jump in sales.

Samsung’s mobile devices business, on the other hand, faced challenges during the first quarter. Despite shipping about 60 million smartphones, Apple (AAPL.O) experienced a decline in sales in China. The launch of Samsung’s flagship Galaxy S24 smartphones saw shrinking profit margins due to rising costs, including memory chip prices. However, AI functions embedded in the S24 phones helped drive sales and maintain double-digit profitability for the company in the first quarter. Customer surveys revealed that half of the customers purchased the S24 phones specifically for the AI features, and 60% used AI regularly.

In conclusion, Samsung is strategically focusing on AI chip production to tap into the growing demand for AI technologies. Although facing stiff competition from SK Hynix, Samsung’s increased production of HBM3E chips and potential partnership with NVIDIA could change the dynamics of the market. Despite challenges in the mobile devices business, Samsung’s chip division has seen a significant increase in revenue and operating profit, driven by higher sales of NAND flash and DRAM chips. The integration of AI functions into Samsung’s smartphones has also contributed to maintaining profitability in the first quarter.