Samsung's Strong Q1 Performance

SEOUL (Reuters) - Samsung Electronics has reported a resilient performance in its first-quarter results, easing fears of a steeper decline with only a 0.2% drop in operating profit. This encouraging outcome, which surpasses analysts' expectations, is attributed to robust sales of memory chips and a surge in smartphone demand as customers rush to stockpile ahead of anticipated U.S. tariff changes.

The world's preeminent memory chip producer projected an operating profit of 6.6 trillion won (approximately $4.49 billion) for the January to March period, a substantial increase over the 5.1 trillion won estimate by the LSEG SmartEstimate. This figure is just slightly lower than the 6.61 trillion won posted in the same timeframe last year and an uptick from the 6.49 trillion won in the previous quarter.

“While general memory chip prices have seen a decline, the demand from customers eager to secure stock against possible U.S. tariffs played a significant role in bolstering Samsung’s memory chip shipments,” commented Greg Roh, head of research at Hyundai Motor Securities.

Following the announcement of its preliminary earnings, Samsung’s shares experienced a 2.6% increase during morning trading, outperforming the 1.6% rise in South Korea’s KOSPI benchmark index.

Samsung is currently navigating significant leadership shifts following the unexpected death of co-CEO Han Jong-Hee last month, with a detailed financial report set to be released on April 30.

Q2 Challenges on the Horizon

Despite the company's promising first-quarter results, concerns loom for the second quarter. Last week, President Donald Trump outlined new reciprocal tariffs affecting several trading partners, including China, raising fears about future semiconductor pricing. While there are exemptions currently in place, the prospect of new tariffs on chips remains a cloud over the sector.

Roh highlighted that the artificial intelligence (AI) enhancements in Samsung's recently launched Galaxy S25 smartphones have driven sales up significantly, indicating that preemptive shipments by customers in North America were likely a factor in first-quarter performance.

The Galaxy S25 series, introduced in January, is designed to captivate consumers with its advanced AI capabilities to rival offerings from Apple and Chinese manufacturers. However, analysts predict that the rush to stockpile in Q1 may lead to reduced shipments in the subsequent quarter.

Senior analyst Kim Sun-woo at Meritz Securities suggested that Samsung’s operating profit may stagnate in Q2 due to challenges in acquiring new clients for high-bandwidth memory (HBM) chips.

Estimates indicate that profits from Samsung's chip division could plummet to around 800 billion won in Q1, approximately half of the earnings recorded a year prior, largely due to setbacks in the foundry business. This segment produces chips on a contract basis for major clients like Nvidia, Qualcomm, and AMD.

Samsung has previously cautioned about diminished sales of its AI chips in Q1 due to stringent U.S. export limitations affecting China, its largest market. During a recent shareholders' meeting, Samsung executives expressed regret over their delayed response to the booming AI chip market, projecting a recovery in chip earnings in the latter half of the year driven by increased demand for smartphones and data centers. They also aim to commence the supply of their next-gen HBM3E 12-high chips to Nvidia mid-year.

In similar feedback, South Korea’s SK Hynix, the second-largest memory chipmaker globally, reported that some customers have expedited their orders to guard against upcoming U.S. tariffs but remained cautious about a stable recovery in demand.

Micron Technology also indicated optimism, forecasting third-quarter revenues exceeding Wall Street’s predictions, pointing to a robust appetite for HBM chips utilized in AI applications.

As the semiconductor landscape evolves, all eyes will remain on Samsung and its strategic responses to both market demands and regulatory challenges. Will they maintain their lead, or will rival firms seize the opportunity? Only time will tell!