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Our reporter Wu Qing reports from Beijing

After experiencing a downturn in 2023, Samsung's performance has recovered strongly as the semiconductor business has bottomed out.

A reporter from China Business News learned from Samsung that on July 31, Samsung Electronics released its second-quarter financial results ending June 30, 2024. In the second quarter of this year, Samsung Electronics' revenue increased by 23.42% year-on-year, and its operating profit soared by 1458.2% year-on-year. Both revenue and profit performance exceeded market expectations. This is the first time since the third quarter of 2022 that Samsung Electronics' quarterly operating profit has exceeded 10 trillion won.

Many industry insiders said in interviews with reporters that Samsung's strong second-quarter performance was expected, with the bottom of performance and a low base in 2023, and the surge in demand for memory chip business driven by the AI ​​boom. The memory chip market has always been a typical cyclical industry, and the economic situation and downstream industries such as consumer electronics and automobiles have an important impact on the semiconductor industry. In the second half of 2024, the recovery and performance of downstream industries such as consumer electronics and automobiles, as well as various fields of semiconductors, remain to be observed. What is certain is that competition among companies in various fields will continue to intensify.

AI-driven chip business recovers and performance rebounds from bottom

Samsung's second-quarter profit was boosted by a rebound in semiconductor prices driven by the boom in artificial intelligence.

The financial report shows that in the second quarter of 2024, Samsung's revenue was 74.07 trillion won (about 388.1 billion yuan), up 23.42% year-on-year. Operating profit increased to 10.4 trillion won (about 54.7 billion yuan), up 1458.2% year-on-year.

As for the reasons for the surge in performance, information provided to reporters by Samsung China showed that generative artificial intelligence is booming, and driven by strong demand for HBM (high-bandwidth memory) as well as traditional DRAM (memory) and server SSD (solid-state drive), the entire memory market continued to recover, driving up the average selling price (ASP), thereby driving performance growth, while strong sales of OLED panels also contributed to the performance.

Previously, due to the weak global demand for consumer electronics in the post-epidemic period, Samsung's chip division once performed poorly. In 2023, the decline of Samsung's semiconductor business still caused Samsung to hand in its worst financial report in more than a decade. In 2023, Samsung's operating profit fell below 10 trillion won for the first time in 15 years since the global financial crisis in 2008. Now, boosted by AI, the chip division has once again become the "cash cow" of this technology giant.

Samsung has two main business units directly related to chips, namely the Device Solutions Business Unit (DS) and the Foundry Business Unit. The former is mainly responsible for Samsung's memory chip business, which has the largest annual shipments and the highest share in the market. The latter mainly provides semiconductor foundry services, including designing and manufacturing chips for other companies.

Among them, the DRAM and NAND Flash memory chips produced by Samsung's DS department have contributed more than 60% of the company's revenue all year round, making it the largest revenue department.

According to the financial report, Samsung Electronics' chip business had sales of 28.6 trillion won and operating profit of 6.45 trillion won in the second quarter. This is the first time the business unit has achieved quarterly profit since the first quarter of 2023.

The reporter previously learned from people in the semiconductor supply chain that many semiconductor chip manufacturers have sent price increase letters to terminal manufacturers, and consumer electronics has entered a new round of price increase cycle. "At present, the price of memory chips has risen, and chip manufacturers are not in a hurry to ship them. They plan to continue to increase contract prices in 2024." A consumer electronics industry insider told reporters.

Although Samsung Electronics is the industry's largest memory chip maker, SK Hynix has a clear advantage in the emerging HBM market due to its slow start. According to market research firm TrendForce, SK Hynix led the HBM market with a 53% market share last year, followed by Samsung Electronics (38%) and Micron (9%).

To reverse the passive situation, Samsung replaced the head of its semiconductor division in May this year and set up a new HBM development team to accelerate the development of the next-generation HBM technology. Morgan Stanley analyst Shawn Kim said that Samsung's share of the HBM market is expected to increase to at least 10% by 2025, which will increase its revenue by about $4 billion.

Neil Shah, vice president of research at Counterpoint Research, said: "SK Hynix and Micron will continue to challenge Samsung in the memory field, both in the fast-growing HBM field and in the AI ​​smartphone and PC market."

Samsung Electronics expects demand for server products, including HBM and SSD, to maintain strong growth in the second half of the year. Samsung Electronics said: "In the second half of 2024, as major cloud service providers and enterprises expand their AI investments, AI servers are expected to occupy a larger (memory) market share."

Mobile phone business declined year-on-year, strengthening high-end positioning and AI functions

However, while the chip division rebounded from the bottom, Samsung's smartphone division's sales declined.

Specifically, Samsung's Device Experience (DX) division had sales of 42.07 trillion won and operating profit of only 2.72 trillion won. Among them, the sales of the Mobile Experience (MX) business covering smartphones decreased month-on-month. In contrast, Samsung's DS division, which is responsible for the semiconductor business, had sales of 28.56 trillion won and operating profit of 6.45 trillion won.

Samsung said that the decline in smartphone sales in the second quarter was mainly due to the "base effect of new models launched in the first quarter." In addition, the profitability of the smartphone business is also declining due to rising prices of key components.

However, Samsung also said that demand for the Galaxy S24 series remains strong. The high-end market for smartphones is expected to grow in the second half of the year, but the mid- and low-end markets may slow down. The company plans to continue promoting its high-end Galaxy Al products. Galaxy series devices including Galaxy Z Fold6, Z Flip6, Watch Ultra and Ring will be available globally.

The reporter noticed that on July 17, Samsung Electronics officially launched the sixth-generation folding screen mobile phones, Samsung Galaxy Z Fold6 and Galaxy Z Flip6, for the Chinese market. At the same time, many new smart wearable products including watches and rings were also launched in China. A Samsung China staff member told the reporter that these devices can be interconnected, highlighting the ecological advantages.

Choi Seung-sik, President of Samsung Electronics Greater China, said: "The arrival of Galaxy AI in early 2024 provides us with more possibilities. Now, with the further optimization and expansion of Galaxy AI, we have built a more complete Galaxy AI ecosystem to drive Galaxy AI into the next stage."

The above-mentioned consumer electronics industry insider told the reporter that, with domestic mobile phones going overseas, Samsung's mobile phone sales have declined to a certain extent. At the same time, in order to avoid homogeneous price wars and strengthen revenue and profit performance, Samsung's mobile phone business has strengthened its high-end positioning and AI concepts, which is understandable. At the same time, launching a large number of interconnected electronic products at one time to strengthen the ecological advantage is also a routine operation of major mobile phone manufacturers. "But domestic mobile phone brands are also doing this work, and it is hard to say what the results will be. In the end, it all depends on product strength, price power and brand power."

(Editor: Zhang Jingchao, Reviewer: Li Zhenghao, Proofreader: Zhang Guogang)