SEOUL - Samsung Electronics estimated on Friday its first-quarter operating profit would rise more than 10-fold, topping market expectations, as chip prices have started to rebound from a severe downturn thanks to a boom in artificial intelligence.

But the guidance was not enough to cheer investors who sent Samsung shares down 1.3% early on Friday, in line with a 1.1% drop in the wider South Korean market, as they await updates on progress in its high-end memory chip business that has been lagging behind rivals.

The world's largest memory chip and TV maker estimated its operating profit rose to a better-than-expected 6.6 trillion won ($4.89 billion) in the quarter ended March 31, beating a 5.7 trillion won LSEG SmartEstimate.

That was up 931% from 640 billion won a year earlier and would be Samsung's highest operating profit since the third quarter of 2022.

But revenue missed expectations, likely rising 11% from the same period a year earlier to 71 trillion won, below a LSEG SmartEstimate of 72.3 trillion won.

"Since revenue was mostly in line but operating profit beat expectations, the inventory valuation of NAND flash chips may have improved. Demand for NAND has improved, which may have improved margins as well," said Park Sung-soon, an analyst at Korea Investor Relations Service.

"Initial response to new Galaxy S24 smartphones was also positive due to on-device AI, so if greater-than-expected portion of the high-margin premium smartphones were sold, it would have an impact."

The company is due to release detailed earnings on April 30.

CHIP PRICE RISE

The better performance came as its chip division, traditionally its biggest earner, is expected to report its first quarterly profit in five quarters as memory chip prices bounce back from a deep trough that began in mid-2022 due to weak post-pandemic demand for gadgets.

DRAM chip prices rose about 20% during the first quarter versus the previous quarter, while NAND flash chip prices increased by 23% to 28%, according to data provider TrendForce.

The bullish outlook for memory chip demand, including exploding appetite for chips such as high-bandwidth memory (HBM) used in AI chipsets, has driven a 34% rise in Samsung shares over the last 12 months, beating a 10% gain in the broader market.

But it has underperformed its cross-town rival SK Hynix , whose shares surged 122% during the same period, in the booming HBM market, partly due to its relatively late entry into the segment.

Analysts expect Samsung to catch up gradually, as it plans to begin shipments of its latest and most powerful HBM chips in the third quarter.

The 7.2-magnitude earthquake that struck Taiwan on Wednesday is likely to tighten semiconductor supply, and analysts said Samsung and SK Hynix may hike memory chip prices by a sharper margin than previously planned, potentially boosting second-quarter earnings.

In its mobile business, Samsung likely reported a solid profit after launching sales of its new flagship Galaxy S24 smartphones in late January, analysts said.

Eugene Investment & Securities estimates Samsung shipped 57 million smartphones during the quarter, up 8% from the fourth quarter, and the average selling price of Samsung smartphones likely rose 30% to $340 quarter-on-quarter, supporting profits.

Global sales of Galaxy S24 smartphones grew by 8% compared to the previous year's Galaxy S23 series during their first three weeks of availability, data provider Counterpoint said.

($1 = 1,348.9300 won)

(Reporting by Joyce Lee and Heekyong Yang; Editing by Miyoung Kim and Jamie Freed)