Samsung Electronics Q2 earnings: chips rebound, but smartphones slow down

Samsung Electronics' chip business logged 6.5 trillion won ($4.7 billion) in profit during April-June period, turning around from a loss of 4.4 trillion won from a year before, as recovery in memory chip demand continued propelled by the AI frenzy.

Samsung Electronics' Seocho office [YONHAP]

Samsung Electronics' chip business logged 6.5 trillion won ($4.7 billion) in profit during April-June period, turning around from last year's loss of 4.4 trillion won as the AI frenzy continued to propel recovery in memory chip demand.

The chip business' revenue was reported at 28.6 trillion won, a 94 percent on-year surge.

“Driven by strong demand for HBM [high bandwidth memory] as well as conventional DRAM [dynamic random access memory] and server SSDs [solid-state drives], the memory market, as a whole, continued its recovery,” the company said in its earnings announcement Wednesday.

“This increased demand is a result of continued AI investments by cloud service providers and growing demand for AI from businesses for their on-premise servers.”

The company's revenue that covers from chips to smartphones came to 74.1 trillion won, and operating profit reached 10.4 trillion won. representing on-year increases of 23 percent and 1,462 percent respectively.

The electronics giant made facilities investments wort 12.1 trillion won in the second quarter, 9.9 trillion won of which were dedicated to chip sector.

HBM, HBM and HBM HBM sales largely drove the improvements in Samsung Electronics' chip business.

“Sales of HBM rose by 50 percent in the second quarter, compared to the previous quarter, on the back of demand for generative AI,” Kim Jae-june, Samsung Electronics' vice president in charge of memory chips, said on a conference call Wednesday.

“Sales of HBM in the latter half will exceed those of the first half by [a factor of] at least 3.5.”

Kim added that eight-layered HBM3E — the fifth generation of premium DRAM chips — will start shipping out to clients in the third quarter of this year.

The 12-high product, currently Samsung Electronics' primary focus, has “completed the ramp-up for mass production” and will begin shipping out to clients in the latter half of 2024.

Samsung Electronics hasn't yet received the green light from Nvidia, the predominant player in the AI processor world, for its HBM3E products. Crosstown rival SK hynix, meanwhile, has been supplying eight-layered HBM3E to the American chip giant since early this year.

Competition for 12-high HBM3E is expected to be fierce; SK hynix announced in May that it plans to start mass-producing the chips in the third quarter of this year.

Samsung said its plan to expand manufacturing capacity for HBM by more than twofold next year is open to more adjustments as demand for the premium chip continues to grow.

Slow smartphone demand The company's mobile business recorded operating profit of 2.2 trillion won in the second quarter, a 26.6 percent drop from the previous year, due to slow smartphone demand and rising costs, according to the company.

Revenue for the April-June period came to 27.4 trillion won, a seven percent increase from the year before but an 18 percent drop from the previous quarter.

“As industry downturn for smartphones continued in the second quarter, revenue experienced a drop compared to the first quarter when new smartphone models were launched,” the company said in a release.

“A cost hike in major components also deteriorated profitability.”

The company forecast an upturn in the second half with the launches of its new foldables — the Galaxy Z Flip 6 and Fold 6 — as well as the Galaxy Ring, although the two foldables' preorder figures have been disappointing, selling 110,000 fewer units than their predecessors did.

Samsung Electronics made rare remarks about its yet-to-launch Galaxy S25 series, which is slated for a 2025 debut.

“For camera and display specs, the S25, at launch, will have the top-of-the-line upgrades,” Daniel Araujo, vice president at Samsung Electronics' Mobile eXperience division, said on the conference call.

“We are also preparing industry-best APs [application processors] and memory to boost AI performance and offer an overall premium experience.”

Samsung Electronics shares closed at 83,900 won Wednesday, reflecting an uptick of 3.58 percent from the previous trading day.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]