Samsung Electronics has revealed plans to reduce memory chip production after projecting a 96% decline in quarterly operating profit.
The South Korean electronics behemoth disclosed this on Friday as it reported its lowest profit statistics since 2009, forecasting more declines in memory chip sales globally.
According to the corporation, sales have declined significantly due to a slowing global economy and lower demand following Covid.
When demand for consumer gadgets spiked during the pandemic, smartphone and personal computer manufacturers stocked up on chips while other consumers made alternate purchases to use at home. Rising inflation has caused buyers to cut back on purchases, prompting the corporation to run down stocks as it has experienced shortages in recent years.
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Cutting to a meaningful low
While Samsung did not specify by how much it would cut down chip production, it however said the cut would be “meaningful”.
“We are lowering the production of memory chips by a meaningful level, especially that of products with supply secured,” the company said in a statement.
Although cutting short-term production, Samsung said it was still making long-term investments in infrastructure and research to secure needed clean rooms for chip production and expand its technological lead.
Having previously flagged capital spending similar to the 53.1 trillion won investment in 2022, Samsung did not say how its 2023 investment plans would be affected by the new development.
The announcement is the latest sign that deteriorating global economic conditions are hitting chip makers like Samsung and SK Hynix, which have enjoyed years of record-breaking profits on furious chip demands.
Samsung’s profits in January-March are expected to decline to $455m, a 14-year low, the company said in a regulatory filing, pointing to “continuing weak demand for IT products that have aggravated the performances of all sectors”.
Samsung saw profits fall by nearly 70 percent in the final quarter of 2022, which was blamed on headwinds including Russia’s war in Ukraine and high inflation.
Samsung’s chip loss record
Samsung’s latest record shows the lowest profit for any quarter in 14 years as its operating profit fell to 600 billion won ($455.5 million) in January-March, from 14.12 trillion won a year earlier.
Analysts have estimated that first-quarter profit fell short of 873 billion won Refinitiv SmartEstimate, its chip division, is likely to report a record loss of 2.1 trillion won ($1.6 billion), according to an average of analyst forecasts and post another 2 trillion won loss in the current quarter, a major divergence for what had been Samsung’s most important cash cow, generating about half of its profits in better years.
Samsung Group is the biggest of the family-run conglomerates that hold significance over South Korea’s economy, accounting for roughly one-fifth of the gross domestic product (GDP).
Investors are hopeful of a market recovery in the semiconductor industry as Analysts said Samsung’s production cut might improve its performance slightly in the current quarter and could also cement or hasten the rebound of memory chip prices. The company is due to release detailed earnings, including divisional breakdowns, later this month.