Samsung Electronics' (005930.KS) preliminary second-quarter earnings on a consolidated basis, released Monday, brought to life a remark that Kim Yong-kwan, president and head of business strategy at Samsung Electronics' semiconductor (DS) division, made to employees earlier this month: "This year's profit alone exceeds the cumulative profit from the 40 years since we entered the semiconductor business."
Samsung Electronics posted preliminary second-quarter results of 171 trillion won in revenue and 89.4 trillion won in operating profit. Excluding a performance bonus provision of 15 trillion to 17 trillion won, the company earned as much as more than 106 trillion won in this quarter alone, demonstrating profitability unmatched anywhere in the world. The second-quarter operating profit is on par with the roughly 111.83 trillion won that Samsung's DS division earned over the five years since 2020, excluding 2024, when it recorded a loss of 14.88 trillion won.
The market is focusing on the fact that nearly all of this operating profit was earned by the memory division, which sells DRAM and NAND flash. The memory division is reported to have recorded operating profit exceeding 100 trillion won in the second quarter. The financial investment industry estimates second-quarter revenue for Samsung's memory business at about 120 trillion won. Based on this, the memory business operating margin is about 83 percent, surpassing Micron (81 percent for March-May) and standing at the highest level in the industry. Although some in the investment industry raised the "memory peak" theory, in which chip prices and profitability turn downward, Samsung Electronics dispelled such concerns through these results.
Furthermore, some assess that Samsung Electronics, the world's No. 1 memory maker, proved its overwhelming position in the artificial intelligence (AI) chip market through these results. Samsung Electronics' DRAM production capacity, measured by wafers, is about 650,000 to 700,000 sheets per month, more than double that of third-ranked Micron (about 300,000 sheets) and more than 20 percent higher than second-ranked SK hynix (about 550,000 sheets). This is why some say Samsung has risen to the status of a so-called "swing producer," capable of exerting decisive influence over prices and supply-demand flows in the global memory market by leveraging the world's largest supply volume.
In addition, Samsung Electronics became the world's first to mass-produce HBM4, the sixth-generation high-bandwidth memory (HBM) to be mounted on Nvidia's next-generation AI accelerator Rubin, in April this year. It also delivered the first samples of the seventh-generation HBM4E to be adopted in Rubin Ultra, which is under development for release next year, realizing a technological "super gap." Having seized leadership in memory technology, the direction of memory prices now hinges on Samsung Electronics' production strategy.
The industry is even forecasting that Samsung Electronics, having secured leadership in the memory market, will write a record for the ages in global corporate history by surpassing 100 trillion won in operating profit each quarter in the second half as well.
According to financial information provider FnGuide, over the past month, the consensus (forecast) for Samsung Electronics' third-quarter operating profit stands at 110 trillion won, higher than the second quarter, and 120.8 trillion won for the fourth quarter. Brokerages forecast that the gradual rise in memory prices will continue into next year, with some analyzing that Samsung Electronics will surpass 140 trillion won in quarterly operating profit next year. In fact, since the production capacity of the three major memory makers will expand significantly after 2028, the memory shortage is likely to persist.
Some assess that Samsung Electronics, leveraging its leading market position, is even changing the direction of the memory cycle, which has repeatedly swung between boom and bust. It is undergoing a fundamental transformation so that continuous profits can be generated through long-term supply agreements (LTAs) of three to five years with major big tech customers. An industry official explained, "Going forward, by raising the LTA share of total contracts to 50 percent, a profit structure can be created in which high operating profit is sustained over the long term."
However, there is considerable unease about the high-flying performance of memory chip makers such as Samsung Electronics, which relies on surging prices rather than a significant increase in volume.
In response, Chairman Jay Y. Lee is reported to be working to add large-scale supply contracts in the foundry (contract chip manufacturing) business as he attends the "Sun Valley Conference" in Idaho, U.S., where global big tech chief executives gather, Monday. Samsung Foundry signed chip manufacturing contracts with big tech firms such as Tesla and Apple around the time of Lee's U.S. trip in August last year.
Meanwhile, unlike the semiconductor division, which posted record earnings, the finished products (DX) division—which includes smartphones and home appliances—is reported to have seen its second-quarter operating profit plunge below 1 trillion won. The surge in memory prices boomeranged, cutting smartphone sales profits. According to Counterpoint Research, memory's share of smartphone costs rose from 14 percent in the first quarter of last year to as high as 40 percent recently. Home appliances also could not avoid the impact of weak demand and rising raw material prices.
The DX division plans to aim for an earnings rebound by launching its new foldable phone lineup, the "Galaxy Z8" series, in the global market this month. The strategy for the new products is to boost operating profit through price increases.
Samsung also plans to improve profitability in its home appliance and TV businesses by expanding outsourcing, collaborating on production with outside firms. An industry official said, "We can pursue a fundamental transformation of the business by improving the production efficiency of small and mid-sized home appliances."
