Samsung's Q3 profit seen jumping nine-fold, but chip margins may be flat

SEOUL: Samsung Electronics is expected to report a nearly nine-fold jump in third-quarter operating profit, driven by robust AI demand, though analysts have cut forecasts by nearly ​8% since the end of August.

Despite moderating gains in the prices of memory chips and a strengthening South Korean won, the world’s largest ‌memory-chip maker is expected to post operating profit of 106.1 trillion won ($79.1 billion) for the July-September quarter.

The LSEG SmartEstimate, based on forecasts from 21 analysts, and weighted toward those with stronger track records has been slashed by 7.7% since the end of August.

It will be up from 12.17 trillion won a year earlier for Samsung’s fourth consecutive quarter of record operating profit, underscoring a prolonged memory ​shortage as demand for AI infrastructure outstrips supply growth.

Chipmakers expect the shortage, which began more than a year ago, to persist into next year and ​perhaps through 2028.

However, the pace of price increases slowed in the third quarter, fanning concerns that chip margins may have peaked ⁠and prompting questions about the durability of the AI spending boom.

Samsung will provide preliminary Q3 results on Thursday before detailed data is released in late October.

The moderation in ​memory prices is being closely watched by investors after a more than one-year-long rally fuelled by AI-driven demand.

That rally propelled the world’s largest memory producers Samsung, SK Hynix and Micron, ​to record profits and margins.

Rising cost burden

Higher chip prices have pushed up the cost of smartphones and consumer electronics, weighing on demand.

At the same time, long-term supply deals between chipmakers and customers have limited price gains in exchange for guaranteed supply.

TrendForce expects conventional DRAM contract prices to rise 10% to 15% in the fourth quarter from the preceding quarter, slowing from a second-quarter surge of ​roughly 60%.

“Although the market remains in a tight supply position, the pace of price growth is expected to decelerate,” said Avril Wu, its senior vice president for ​research.

Suppliers are wary of further steep price increases that could hurt demand across a broad range of consumer electronics, Wu added.

“In addition, long-term agreements represent an increasingly higher proportion of suppliers’ total ‌output. With ⁠ceiling-price mechanisms built in, the rate of price increases has slowed down,” Wu said.

In July Samsung said it aimed to secure long-term contracts covering about two-thirds of its memory output, joining rivals seeking to reduce exposure to the industry’s boom-and-bust cycles.

US rival Micron said the chip market could be tighter in 2027 and 2028 than this year, although it expects its gross margin to slip to 86.3% in the current quarter, from 87%, partly due to employee compensation costs.

Samsung’s memory-chip operating profit margin is expected to reach 76% in ​the third quarter, flat with the preceding ​quarter, estimates by SK Securities analyst ⁠Han Dong-hee show.

It also faces growing competition from Chinese rivals, which remain concentrated in lower-end products but are benefiting from the AI-driven memory shortage.

“Our industry checks indicate that an increasing number of OEMs and ODMs are adopting Chinese DRAM and NAND,” Kinngai Chan, ​senior research analyst at Summit Insights Group, said in a report.

Currency swings are another headwind. The won strengthened 14.3% against the ​dollar in the third ⁠quarter, rebounding sharply from 17-year lows for its biggest quarterly gain since early 1998.

That reduces the value of overseas earnings when repatriated.

Samsung shares have fallen about 25% from a June record but remain more than double their level at the start of the year.

The company is expected to boost sales of high-bandwidth memory (HBM) chips, a critical component for AI data ⁠centres, as ​it narrows the gap with market leader SK Hynix.

Samsung had lagged in HBM supplies after delays in ​qualifying products for Nvidia, but has gained ground this year by expanding shipments of its latest HBM4 chips.

Its HBM market share is expected to rise to 34% this year from 20% last year, J.P. Morgan ​estimates, while SK Hynix’s share is forecast to fall to 46% from 60%.