Samsung Electronics announced preliminary results for the third quarter (July-September) that significantly exceeded market expectations. The surge in semiconductor demand driven by artificial intelligence (AI) led to a substantial increase in server memory sales, and the previously sluggish high-bandwidth memory (HBM) performance rebounded in the second half (July-December). The success of new foldable phone products also appears to have had a significant impact.

According to Samsung Electronics on the 14th, third-quarter sales and operating profit were KRW 86 trillion and KRW 12.1 trillion, respectively, marking increases of 8.7% and 31.8% compared to the same period last year. This is the first time quarterly sales have surpassed KRW 80 trillion. The operating profit is the largest since the second quarter of 2022 (April-June), which recorded KRW 14.1 trillion. Recent securities firms had forecast third-quarter operating profits in the range of KRW 10 trillion to KRW 11 trillion, but the results exceeded this by more than KRW 1 trillion.

● AI Demand Surge Drives General-Purpose and HBM ‘Double-Whammy’

The primary reason for Samsung Electronics' better-than-expected third-quarter performance is the normalization of previously weak semiconductor results. The semiconductor market is currently experiencing explosive demand due to the increasingly fierce AI competition among big tech companies.

In the general-purpose memory sector, where Samsung Electronics holds a strong position, prices have been rising sharply. A semiconductor industry official explained regarding the results, "In the third quarter, demand for server solid-state drives (SSDs) increased significantly, not only for DRAM but also for NAND." The focus of memory manufacturers on HBM production has reduced the supply of general-purpose DRAM, influencing price increases. According to market research firm TrendForce, the average transaction price of DDR4 8Gb, a general-purpose DRAM, jumped 366.7% from USD 1.35 in March to USD 6.30 in September. DDR5 16Gb products also rose 43.5% from USD 4.25 to USD 6.10. TrendForce predicts that DRAM prices will rise by 3-8% in the fourth quarter compared to the third quarter.

HBM, which had previously hindered the memory business, also showed signs of normalization in the third quarter. Samsung Electronics reported a 30% increase in HBM sales volume in the second quarter compared to the previous quarter, with HBM3E accounting for 80% of sales. It is analyzed that HBM sales performance increased significantly in the third quarter. Following the second-quarter earnings announcement, Samsung Electronics expressed confidence in a conference call, stating, "AI demand is expected to remain strong as major server companies continue to invest," and "The proportion of HBM3E in the second half (July-December) is expected to be in the high 90% range."

Samsung Electronics is evaluated to have begun to enter a full-fledged normal trajectory after passing the HBM3E quality test from Nvidia in September. While competitors like SK Hynix and Micron in the U.S. had already supplied HBM3E to Nvidia, Samsung Electronics had only been supplying to some big tech companies like AMD.

● HBM4 Competition Intensifies in the Fourth Quarter

Besides memory, the performance of major business divisions such as foundry, mobile, display, and Harman is analyzed to have generally improved. The foundry, which had long been a 'sore spot' dragging down Samsung Electronics' performance, is believed to have reduced its deficit as the operating rate improved in the third quarter. Korea Investment & Securities stated, "The operating rate is gradually rising as new customers are secured in processes above 7 nanometers (nm; 1 nm is one-billionth of a meter)."

In mobile, the new foldable phone product recorded the highest-ever pre-sale of 1.04 million units in Korea immediately after its launch in July. It also recorded the highest pre-sales among foldable phones in the U.S., with initial sales increasing by more than 50% compared to its predecessor.

In this trend, display sales related to foldable phones are also expected to have increased, significantly improving SDC (Samsung Display) performance. Additionally, the launch effect of the iPhone 17 in the third quarter is also considered significant. Samsung Display is the largest supplier of OLED panels to Apple.

In the fourth quarter, with strong AI semiconductor demand expected to continue, the key will be who gains the upper hand in the next-generation HBM4. HBM4 is expected to see significant structural changes compared to previous generations, effectively starting a 'zero-base' competition. The three major DRAM companies, Samsung Electronics, SK Hynix, and Micron, are putting all their efforts into securing HBM4 orders and mass production.

There are also high expectations for the recently established partnership with OpenAI. OpenAI is building a separate AI semiconductor ecosystem with Broadcom and AMD, apart from Nvidia, which is expected to present a significant opportunity for domestic memory semiconductor companies.

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