Samsung is cutting production to cope with a global glut of memory chips as profits fall
Samsung Electronics said it would make a “meaningful” cut in memory chip production in a major move to ease the glut in the industry, as its quarterly operating profit plunged 96 percent to a 14-year low.
The long-awaited move comes as the South Korean company’s semiconductor division is estimated to have suffered billions of dollars in losses in the first three months of this year, as the slowing global economy dampens demand for chips.
Memory chip losses are likely to continue in the second quarter as inventory remains at record levels, putting pressure on chip prices. Demand for technology remains weak in the face of inflation and higher interest rates following the wave of the pandemic.
The world̵[ads1]7;s largest maker of memory chips, smartphones and TVs reported first-quarter operating profit of an estimated Won600bn ($455.5m), compared with an operating profit of Won14.12tn a year earlier. It fell far short of a Won1.45tn analyst forecast compiled by Bloomberg and is the smallest profit since 2009, during the global financial crisis. Sales fell 19 percent to Won63tn.
“Memory demand fell sharply . . . due to the macroeconomic situation and lowering of customer buying sentiment, as many customers continue to adjust inventory for economic purposes, Samsung said on Friday.
Prices of DRAM memory chips, used in computers, phones and servers, fell about 20 percent in the January-March quarter, while prices of Nand flash memory chips fell 10-15 percent, according to market research firm TrendForce. Chip prices are expected to fall a further 5 to 15 percent in the current quarter.
Inventories at Samsung rose to Won52.2tn at the end of last year, but the company had previously resisted pressure to cut production while rivals such as Micron, Kioxia and SK Hynix have cut production to adjust to oversupply.
Analysts estimate Samsung’s chip loss in the first quarter at more than Won3tn, but expect a price rise in the second half of this year. Executives at Micron and SK Hynix are optimistic about a revival in the market later this year, but have warned that the pace of recovery depends on the industry’s efforts to cut supply.
“Samsung should have joined the production cut earlier, but it is now sending a clear signal to the market and memory buyers,” said Daniel Kim, an analyst at financial group Macquarie, who expects Samsung to cut production this year by more than 25 percent. . “The recovery in the market is now a matter of time. It will probably come in the third or fourth quarter.”
Samsung’s announcement boosted its shares by 3.5 percent and SK Hynix shares by 5.6 percent on Friday morning in Seoul, while the Kospi Composite index rose 1 percent.
Samsung did not disclose the size of the short-term production cut, but said it would continue with its long-term investment plans for its infrastructure and expand research and development spending.
Last month, the company announced a Won300tn plan to invest in its chip manufacturing base over the next two decades as the country prepares for the intensifying global chip war.
