Samsung sees acute chip shortage persisting, warns of mobiles headwind after profit triples

Samsung Electronics forecast a worsening chip shortage this year driven by the AI boom, with strong memory demand benefitting its mainstay chip business but creating headwinds for its other units like smartphones and displays.

Samsung on Thursday said its operating profit more than tripled to a record high in the fourth quarter, underscoring the strong pricing power of the world’s top memory chipmaker, as the race to build artificial intelligence strains chip supply and boosts prices.

However, it warned that surging memory chip prices are raising costs in its smartphone and display businesses, which count Apple and Samsung as customers, sending its shares down 1.2 per cent after a sharp rally this year.

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“A significant shortage of memory products across the board is expected to continue for the time being,” Kim Jaejune, a Samsung memory chip business executive, told analysts on its post-earnings call.

Kim expected any expansion of supply to be limited in 2026 and 2027 while AI-related demand remains strong.

Samsung posted 20 trillion won ($13.98 billion) in operating profit for the October to December period, in line with its estimate and up from 6.49 trillion won a year earlier.

The South Korean company’s revenue rose 24 per cent to 93.8 trillion won in the quarter from a year earlier.

Operating profit at Samsung’s chip business, its main cash cow, surged 470 per cent to a record high 16.4 trillion won in the fourth quarter from a year earlier, making up over 80 per cent of its total profit.

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In contrast, its mobile profit declined by 10 per cent to 1.9 trillion won, squeezed by surging chip prices.

“Memory price increases are expected to accelerate this quarter and are likely to give surprise earnings, while the memory cost burden will intensify on its mobile business,” said Sohn In-joon, an analyst at Heungkuk Securities.

He expects Samsung’s profit to surge five-fold to around 35 trillion won in the current quarter from a year earlier.

Mobiles face memory headwind

The company’s mobile and display businesses warned of a “challenging year” as they face cost pressures from memory price hikes.

The mobiles division plans to work with its major partners to ensure stable supply of products and would “drive resource efficiencies to minimise the risk of profit erosion,” Cho Seung, a Samsung mobile executive, said during the call.

Samsung co-CEO TM Roh described the acute chip shortage as “unprecedented” in an interview with Reuters, adding that he did not rule out raising prices.

“How the division defends margins as the year progresses will be a key issue,” said Ko Yeongmin, an analyst at Daol Investment & Securities.

The display business also expects smartphone demand to weaken in the current quarter due to surging chip prices and anticipates customers will push for price cuts.

Samsung’s display business profit more than doubled to 2 trillion won in the fourth quarter on robust sales of its major customer Apple’s iPhone 17 series.

HBM chips for Nvidia

Samsung said it is already producing its next-generation high-bandwidth memory (HBM) chips, or HBM4, and plans to ship them in February at the request of a “major customer,” apparently referring to Nvidia. It also said customers are in the process of completing qualification testing.

It expected overall HBM revenue to more than triple this year, as it has secured orders for all of its HBM capacity for this year.

Samsung has been trying to catch up with its cross-town rival SK Hynix, a primary supplier for the advanced memory chips crucial for Nvidia’s AI accelerators, after facing supply delays last year.

SK Hynix played down rising competition, saying it aims to maintain its dominant market share in HBM4. Large-scale production of its next-generation HBM was underway to meet customer requests, it said, after booking fourth-quarter profit that more than doubled to a record.

The race to build AI infrastructure prompted chipmakers to divert manufacturing capacity toward high-bandwidth memory for AI servers, squeezing the supply of conventional memory chips.

That has allowed chipmakers to raise prices aggressively “because there is ample robust demand, and they can’t possibly fill it all,” said Tobey Gonnerman, president of semiconductor distributor Fusion Worldwide.

“They’re in the enviable position of being able to dictate price, terms, etc more than ever.”