Samsung Electronics, High-Value Products Impact... "Memory Profit Turnaround in Q1"

Samsung Electronics reduced losses in its semiconductor (DS) division by successfully turning a profit in DRAM within a year, thanks to the effect of high-value-added products. This year, alongside the overall recovery of the semiconductor market, not only is a memory profit turnaround expected in the first quarter, but the entire DS division is also projected to return to profitability. Samsung Electronics plans to timely respond to AI demand by launching new products this year, including AI semiconductors as well as AI-enabled smartphones and home appliances.

Samsung Electronics Hwaseong Campus view / Photo by Samsung Electronics

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The reason Samsung Electronics succeeded in turning DRAM profitable within a year by reducing the DS division’s losses by over 1 trillion KRW in the fourth quarter of last year lies in rising memory prices and expanded sales of high-value-added memory. As customer inventories normalized, the company increased memory content in PC and mobile products and responded to growing demand for generative AI servers by boosting sales of advanced process products such as ▲High Bandwidth Memory (HBM) ▲Double Data Rate (DDR)5 ▲Low Power Double Data Rate (LPDDR)5X ▲Universal Flash Storage (UFS)4.0.

As a result, Samsung recorded bit growth (production increase rate converted to bit units) exceeding the market average, accelerating the depletion of DRAM and NAND inventories and improving performance. In the fourth quarter of last year, Samsung Electronics’ memory sales within the DS division rose 29% year-on-year to 15.71 trillion KRW. This figure surged 49% compared to the previous quarter. Since October last year, prices for general-purpose DRAM and NAND products have continued to rise.

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However, unlike the rapidly recovering memory sector, system semiconductors have shown relatively slower performance improvement, limiting the ability to fully offset losses in the DS division. SK Hynix, which operates in the memory business, increased the proportion of high-value-added product sales, supported by rising product prices and demand from Nvidia, a major player in the HBM market in the U.S. As a result, SK Hynix succeeded in turning a profit in the fourth quarter of last year.

Samsung Electronics is expected to achieve profitability in the DS division this year. Although securities firms differ on the exact timing of the profit turnaround, some forecasts suggest it could be as early as the second quarter. Particularly for memory, expectations are rising for improved performance as demand recovers and prices are projected to continue rising throughout the year. Market research firm TrendForce predicts DRAM prices will increase by 18-23% in the first quarter compared to the previous quarter.

Samsung Electronics plans to actively respond to premium demand such as AI memory in the memory sector this year, focusing on expanding profitability. The company aims to strengthen its market leadership with 12nm (1nm = one billionth of a meter) class 32Gb DDR5 products, timely mass-produce the latest HBM product HBM3E, and accelerate the transition to 12-layer HBM products.

Kim Jae-jun, Vice President and Head of Strategy Marketing at Samsung Electronics’ Memory Business Division, said during a conference call after the fourth-quarter earnings announcement on the 31st, "We plan to focus on improving profitability by actively responding to demand for HBM and solid-state drives (SSD). The memory business is expected to turn profitable in the first quarter."

In the system semiconductor sector, Samsung plans to enhance market responsiveness for key products such as system-on-chip (SoC) and image sensors. The foundry business, which recorded its highest annual order volume last year, announced plans to strengthen competitiveness in advanced processes, including the development of the second generation of 3nm technology.

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Outside of semiconductors, the Display (SDC) division’s premium product sales drove overall company performance. This was the result of timely responses to customer new products in small and medium-sized panels and an increased proportion of high-end products. In particular, display sales expanded as TV sales increased during the year-end peak season.

In home appliances, B2B (business-to-business) business centered on system air conditioners grew, and the sales proportion of premium products increased. However, performance declined due to shrinking demand and intensified competition.

Samsung Electronics expects overall company performance to show a pattern of strong first half and weaker second half this year due to macroeconomic uncertainties and varying recovery speeds across products. The company also announced plans to actively respond to AI demand by incorporating AI functions, including on-device AI, into new products across smartphones, home appliances, and TVs. Harman, benefiting from recent growth in the automotive market, plans to expand orders in new fields as its performance continues to improve.

Meanwhile, Samsung Electronics maximized investment despite the downturn by investing a record 7.55 trillion KRW in research and development (R&D) in the fourth quarter of last year. Capital expenditure reached 16.4 trillion KRW, the largest quarterly investment, marking the second highest after 20.2 trillion KRW in the same quarter of the previous year. The total R&D investment for last year was recorded at 28.34 trillion KRW.

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