Samsung Electronics is projecting an almost ninefold increase in operating profit for the third quarter, largely driven by robust demand in the artificial intelligence sector. However, analysts have already revised down the company’s profit forecasts by nearly 8% since late August, signaling potential headwinds.
Soaring Profits Amid Chip Scarcity
Despite a slowdown in memory price growth and a strengthening Korean won, the world’s largest memory chip maker anticipates an operating profit of 10.61 trillion Korean won (approximately $5.26 billion USD) for the July-September period. This marks the fourth consecutive quarter where Samsung is expected to set a new record for operating profit.
This impressive performance reflects a market where AI infrastructure demand is outstripping supply expansion, leading to a persistent shortage of memory chips. Industry experts believe this deficit, which began over a year ago, is likely to continue into next year and potentially as far as 2028.
Slowing Price Rally and Market Apprehensions
Concurrently, the pace of price increases for chips in the third quarter has decelerated. This has sparked market concerns that profitability within the chip industry may have reached its peak and raises questions about the longevity of the current AI investment wave.
Samsung is scheduled to release its preliminary third-quarter results on Thursday, with full detailed figures to follow later in October. After over a year of price increases fueled by AI demand, investors are closely monitoring the shift in price dynamics for memory chips. This cycle has already delivered record profits to leading manufacturers such as Samsung, SK Hynix, and Micron.
Rising Costs and Long-Term Contracts
The escalating prices of chips are contributing to increased costs for smartphones and other consumer electronics, which in turn can suppress end-user demand. Simultaneously, long-term supply agreements between chip manufacturers and their clients, while ensuring supply stability, are also limiting the speed of price increases.
According to TrendForce forecasts, contract prices for standard DRAM are expected to rise by 10-15% in the fourth quarter compared to the previous quarter. This represents a significant slowdown from the approximately 60% increase observed in the second quarter.
Avril Wu, Senior Vice President at TrendForce, commented, “Although the market is still suffering from a supply shortage, the pace of further price increases is expected to slow down.” She added that suppliers are being cautious about substantial further price hikes, fearing significant damage to end-consumer demand for electronics.
“Furthermore, the proportion of long-term agreements in manufacturers’ overall supply is steadily increasing. Such contracts include price-limiting mechanisms, which also contribute to the slowing growth rate.”
Samsung itself stated in July its intention to ensure that long-term orders cover approximately two-thirds of its memory production capacity. Like its competitors, Samsung aims to mitigate the impact of cyclical fluctuations on its business.
Competition and Currency Risks
U.S. competitor Micron anticipates that supply-demand tension in the chip market will be even greater in 2027-2028 than this year. However, the company expects a slight decrease in its gross margin this quarter to 86.3% from 87%, partly due to personnel costs.
Han Dong-hee, an analyst at SK Securities, forecasts that Samsung’s memory business operating profit margin in the third quarter will be 76%, consistent with the previous quarter.
Additionally, Samsung faces increasing competition from Chinese manufacturers. While Chinese companies are currently focused primarily on budget products, they are also benefiting from the current AI-driven memory shortage.
Kinngai Chan, Senior Analyst at Summit Insights Group, noted in a report, “Our industry research indicates that an increasing number of OEM and ODM manufacturers are beginning to adopt Chinese DRAM and NAND flash memory.”
Currency fluctuations also pose an unfavorable factor. In the third quarter, the Korean won appreciated by 14.3% against the U.S. dollar, making a strong rebound from a 17-year low, representing the largest quarterly gain since early 1998. The strengthening won leads to reduced profits from overseas businesses when converted into the national currency.
HBM Market Position
Samsung’s shares have fallen approximately 25% from their all-time high since June, though they remain more than double their value since the beginning of the year.
Samsung plans to further increase sales of High Bandwidth Memory (HBM), a crucial component for AI data centers. The company is striving to close the gap with industry leader SK Hynix in this specialized market.
Samsung had previously lagged in HBM shipments due to delays in product certification for NVIDIA. However, the company has caught up with competitors this year, increasing shipments of the latest generation HBM4 chips.
JPMorgan forecasts that Samsung’s share of the HBM market could grow from 20% last year to 34% this year, while SK Hynix’s share is expected to decrease from 60% to 46%.
