Samsung Electronics on Thursday reported a record quarterly profit, driven by a staggering 49-fold increase in chip income. The South Korean tech giant warned that a severe supply shortage of memory chips is expected to deepen next year, as clients ramp up spending on artificial intelligence (AI), pushing prices higher.
AI Boom Fuels Chip Demand
The boom in AI data center construction has prompted Samsung and its chipmaking competitors to allocate production capacity to advanced chips used by Nvidia in its AI accelerators. However, chipmakers are struggling to meet surging demand, which is also squeezing the supply of conventional chips. Kim Jaejune, a Samsung memory chip business executive, told analysts during a post-earnings call: "Our supply falls far short of customer demand. Based solely on the demand currently received for 2027, the supply-to-demand gap for 2027 is set to widen even further than in 2026."
Multi-Year Contracts and Capex Increase
Samsung, the world's top memory chipmaker by sales, has signed multi-year binding contracts with customers seeking to secure supplies, though it did not disclose identities or terms. The company also expects to sharply increase capital expenditure this year to meet AI demand. Continued development in AI technology will translate into sustained demand growth, but supply will remain constrained due to the lead time required for new factory construction, Kim added.
Record Chip Division Profits
Revealing the extent of the AI boom, Samsung reported that its chip division's operating profit for January to March reached a record 53.7 trillion won ($36.15 billion), up from just 1.1 trillion won ($774 million) in the same period a year earlier. This accounted for 94% of the quarter's total record profit of 57.2 trillion won, compared to 6.69 trillion won a year prior. Overall revenue rose 69% year-on-year to 133.9 trillion won.
Geopolitical Risks and Labor Unrest
Samsung said that conflict in the Middle East has not disrupted chipmaking, as the firm has secured inventory and diversified sources of vital gases like helium. However, it flagged the risk of higher transportation costs due to rising oil prices and said it will ensure stable power supplies in cooperation with the South Korean government. Meanwhile, Samsung is bracing for potential production disruption as unions representing a majority of its workers in South Korea, especially in its chip division, consider striking over pay.
Impact on Other Businesses
Rising prices of conventional chips have weighed on Samsung's other businesses, such as mobile phones and displays. Samsung, the world's second-biggest smartphone maker after Apple, said its mobile and network division will see profitability decline this year due to rising component costs. Profit in that division fell 35% in the first quarter to 2.8 trillion won. Its display division, which supplies flat-screen displays for customers like Apple, saw operating profit fall 20% to 400 billion won.
Samsung's shares have surged 88% this year, outperforming the broader market's 57% gain. Rival SK Hynix last week also reported a record quarterly profit after a fivefold jump in earnings and forecast a prolonged chip industry boom.
