IT News on October 7th: Driven by strong demand in the field of artificial intelligence, Samsung Electronics' operating profit is expected to increase by nearly nine times in the third quarter; however, since the end of August, analysts have lowered their profit forecasts for the company by nearly 8%.

Despite the slowdown in the upward trend of storage chip prices and the strengthening of the Korean won exchange rate, this world's largest storage chip manufacturer still expects its operating profit for the July to September quarter to reach 106.1 trillion Korean won (Note from IT: The current exchange rate is approximately 526.044 billion yuan).

The SmartEstimate indicator of Reuters ( LSEG ) combines the forecast results of 21 analysts, assigning greater weight to those who have a higher accuracy in their past analyses. Since the end of August, this consensus forecast has been lowered by 7.7%.

Last year at this time, Samsung's operating profit was 12.17 trillion Korean won (approximately 60.339 billion yuan at current exchange rates). This quarter's performance will mark the fourth consecutive quarter in which Samsung sets a new operating profit record. This reflects that the demand for AI infrastructure has surpassed supply expansion, and there continues to be a tight supply of memory chips.

Chip manufacturers believe that the shortage of chips, which began over a year ago, will continue into next year and may even persist until 2028.

However, the pace of chip price increases in the third quarter has slowed down. This has also raised concerns in the market: the profit margins of the chip industry may have peaked, and people are beginning to question how long this wave of AI capital expenditure boom will be able to last.

Samsung will be the first to release preliminary results for the third quarter on Thursday, with the complete and detailed data to be made public in late October.

After a price increase trend that lasted for over a year driven by the demand from AI, investors are now closely monitoring the cooling of storage chip prices. This upward cycle has enabled several global leading storage manufacturers, including Samsung, SK Hynix, and Micron, to achieve record profits and profit margins.

Increasing cost pressures

Rising chip prices have pushed up the overall cost of smartphones and various consumer electronics products, thereby suppressing demand at the end-user level.

At the same time, the long-term supply agreements signed between chip manufacturers and downstream customers not only ensure a steady supply of chips but also limit the extent to which chip prices can rise.

Jiabang Consulting (TrendForce) predicts that the contract price of ordinary DRAM in the fourth quarter will increase by 10%-15% month-on-month; compared to the approximately 60% surge in the second quarter, the increase has clearly eased.

Wu Yating ( Avril Wu ), Senior Vice President of Research at JIBANG Consulting, stated: "Although the market is still in a state of tight supply, the subsequent rate of price increases is expected to slow down."

She added that suppliers are cautious about continuing to raise prices significantly, fearing that such moves could harm the end-demand for consumer electronics on a wide scale.

In addition, long-term agreements are accounting for an increasingly larger proportion of the total shipments from manufacturers; the built-in price cap mechanism in these contracts has also helped to slow down the rate of price increases.

In July, Samsung stated that it planned to ensure that long-term orders covered approximately two-thirds of its storage production capacity. Like its peers, Samsung hopes to use this approach to mitigate the impact of cyclical surges and plunges in the industry on its own business.

Competitor Micron, based in the United States, believes that the supply-demand tension in the chip market in 2027-2028 could even exceed that of this year; however, the company expects its gross margin to decline slightly from 87% to 86.3% this quarter, partly due to employee compensation expenses.

According to securities analyst Han Dongxi ( Han Dong - hee ), Samsung's storage business is expected to have an operating profit margin of 76% in the third quarter, which is the same as the previous quarter.

At the same time, Samsung also has to face increasingly fierce competition from Chinese manufacturers. Currently, domestic manufacturers are mainly focusing on low-end product lines, but they are also benefiting from the current shortage of storage driven by this round of AI.

Summit Insights Group Senior Research Analyst Chen Jianjia ( Kinngai Chan ) wrote in a report: "Our industry research shows that an increasing number of OEM and ODM motherboard manufacturers have begun to adopt domestically produced DRAM as well as NAND flash memory products."

Exchange rate fluctuations are another unfavorable factor. In the third quarter, the Korean won appreciated by 14.3% against the US dollar, rebounding strongly from a 17-year low and recording the largest single-quarter increase since early 1998. After the won strengthened, the profits from overseas operations would shrink when converted back into local currency for accounting purposes.

Samsung's stock price has fallen by about 25% since its historical high in June, but it has still more than doubled compared to the level at the beginning of this year.

Samsung plans to further increase the sales of high-bandwidth memory HBM. HBM is a key component in AI data centers, and Samsung hopes to use this to narrow the gap with industry leader SK Hynix.

Previously, due to delays in the product qualification certification process for NVIDIA, Samsung was at a disadvantage in HBM supply; however, this year the company has managed to catch up by increasing the shipment volume of its latest generation of HBM4 chips.

JPMorgan Chase's forecast indicates that Samsung's market share this year HBM is expected to rise from 20% last year to 34%; whereas SK Hynix's share is predicted to decline from 60% to 46%.