Demand for memory chips will improve in 2024

South Korea Reported by Samsung Electronics Quarterly operating profit on Tuesday was better than expected despite falling 77.6% from a year ago.

Although third-quarter operating profits were down year-over-year, they jumped 262.6% compared to the second quarter, indicating that the glut of memory chips may be on its way to bottoming out. First Quarter Operating profits decreased by 85.15% As of the fourth quarter of 2022, while Operating profit for the second quarter It saw an improvement of only 4.68% from the first quarter.

Here are Samsung’s third-quarter results versus estimates:

• he won: 67.4 trillion KRW (about $50 billion), versus 67.8 trillion KRW expected by analysts surveyed by LSEG.
• Operating profit: 2.43 trillion Korean won, compared to 2.43 trillion Korean won. 2.3 trillion KRW expected by LSEG analysts.

Samsung’s revenues for the quarter ending in September fell by 12.2% compared to a year ago, while operating profits fell by 77.6% in the same period.

Earlier this month, Samsung estimated that third-quarter revenue would be 67 trillion won and operating profit of 2.4 trillion won.

The South Korean chip giant is the world’s largest DRAM chip manufacturer. Its memory chips are found in consumer devices such as smartphones and computers.

“In the fourth quarter, uncertainties remain regarding market recovery driven by wars and geopolitical risks, gradual demand recovery and ongoing customer inventory adjustments,” Samsung said during its earnings call on Tuesday.

“However, we are observing initial indications of demand, stabilizing and gradually improving, supported by recovering consumer sentiment, easing inflation and key customers introducing new products, especially in the PC and mobile phone sectors,” Samsung said.

Regarding memory demand forecasts, Samsung said it expects demand to rise in the fourth quarter with year-end promotions, new product launches by its key customers, as well as strong demand for generative AI.

Large language models like ChatGPT require a lot of high-performance memory chips, which enables these generative AI models to remember details from previous conversations and user preferences in order to generate human-like responses.

in press release Before announcing its earnings, Samsung said it had “received numerous purchase inquiries amid growing awareness that the industry has hit bottom, in the wake of industry-wide production cuts.” It added that it continued to expand sales of advanced contract products.

These advanced node products include DDR5 — double data rate 5 synchronous dynamic RAM, and UFS4.0 — flash storage for the 5G era.

“Our view of a significant recovery in earnings over the next few quarters led by memory is sound, with larger industry-wide production cuts, gradually improving demand trends, as well as improving mix towards higher mid-range selling price products like DDR5.” Goldman Sachs said in an October 12 report.

The investment company maintained a “buy” rating with an unchanged target price of 93,000 won. Samsung shares fell 0.30% to 67,100 won on Tuesday morning.

Global smartphone sales volumes fell by 8% year-on-year in the third quarter of 2023, the ninth consecutive quarter of decline. According to Counterpoint research. This is largely due to a slower-than-expected recovery in consumer demand.

Smartphone and computer makers have been struggling with excess inventory of memory chips after stockpiling them to meet surging demand for consumer devices during the pandemic. Inflation has prompted consumers to curb spending and reduce purchases of consumer devices, resulting in lower demand and prices for memory chips.

But the market grew by 2% QoQ supported by a positive performance in September, indicating a market recovery in the future.

“We expect earnings to rebound from 4Q23, given further improvement in product mix due to expanding high-bandwidth memory 3 sales and higher memory prices,” SK Kim, an analyst at Daiwa Capital Markets, said in an Oct. 3 note.

“For memory, we assume a meaningful reduction in losses due to further improvement of the product mix and reversal of inventory write-downs from the memory price recovery. For display, we expect further improvement in profits through expanding supply of OLED panels for iPhone 15 models,” Kim said.

Samsung said it will expand its sales of advanced contract products to meet demand for high-performance chips in generative artificial intelligence.

“We will actively address the demand for generative AI by increasing our sales share of HBM3 and HBM3E on the back of the largest production capacity in the industry,” Samsung said on Tuesday, referring to next-generation memory processors with high-bandwidth memory.

Local media reported Samsung is expected to supply high-performance DRAM and HBM3 chips to US-based chip designer Nvidia. Nvidia shares are up 187.54% year to date thanks to growing demand for its AI chips.

Daiwa Capital’s Kim said they expect “increasing opportunities related to AI demand in 2024” for Samsung.

“In addition to supplying HBM3 to Nvidia starting in Q4 2023 and expanding supply in 2024, we expect Samsung Electronics to supply HBM3P, targeting next-generation AI GPUs starting mid-2020,” Kim said in an October 3 note. 2024″.