Samsung Vows to Cut Chip Production Amid Slowing Global Demand; Shares rise 4.5%

Samsung Electronics said on Friday it would make a “significant” cut in chip production, like its smaller rivals, as it grapples with a sharp global drop in demand for semiconductors. which drove prices down.

The unusual production cut by the world’s biggest memory chipmaker – with no previous announcement recalled by Samsung officials and analysts – came after it reported a worse-than-expected 96% drop in first-quarter profits .

Investors shrugged off the shortfall, betting the industry leader’s move would support chip prices which had fallen about 70% in the past nine months.

Samsung jumped 4.5% in early trading in the biggest one-day rise since September, while shares of rival SK Hynix Inc jumped 5.6%.

Smartphone and personal computer makers had stocked up on chips during the pandemic when demand for consumer devices surged, but are now cutting inventory as buyers cut back on purchases amid rising electricity inflation.

Samsung said memory demand fell sharply due to the weak global economy and slowing customer purchases as they focused on depleting inventory.

“We are reducing memory chip production by a significant level, especially of products with secure supply,” he added, referring to those with sufficient inventory.

Samsung did not reveal the extent of the planned production cut, but it sent a strong signal to a company that previously said it would make small adjustments like breaks to refurbish production lines, but not a full reduction.

“The #1 company in market share joining the production cuts drove the shares up… SK Hynix and Micron declared production cuts, but only Samsung didn’t, so the market was expecting it,” said analyst John Park. at Daishin Securities.

“Today’s production cut signal provides a positive outlook for a rebound in memory chips in the second half of the year.”

Although reducing production in the short term, Samsung said it continues to make long-term investments in infrastructure and research to secure the clean rooms needed for chip production and expand its technological lead.

It did not specify how its investment plans for 2023 would be affected, having previously reported capital expenditure similar to the investment of KRW 53.1 trillion (approximately Rs 3.29500 crore) in 2022.

SK Hynix said in October it would more than halve capital spending in 2023 compared to 2022, while Micron cut its fiscal 2023 capital plans by more than 30% in September.

Chip Loss Record

Samsung estimated its operating profit fell to 600 billion KRW (about 3,700 crore rupees) in January-March, from 14.12 trillion KRW (about 87,600 crore rupees) a year earlier, in a brief preliminary income statement. This is the lowest profit of any quarter in 14 years.

Q1 earnings are less than KRW 873 billion (around Rs 5,400 crore) Refinitiv SmartEstimate, weighted towards analysts who are more consistently accurate. Several estimates were revised down earlier this week.

Its chip division is expected to register a record loss of KRW 2.1 trillion (about Rs 13,000 crore), according to an average of analyst forecasts, and post another loss of KRW 2 trillion (about Rs 12,400 crore). ) in the current quarter, a major divergence for what had been Samsung’s most important cash cow, generating around half of its profits in its best years.

Analysts said Samsung’s production cut could improve its performance slightly in the current quarter and could also cement or accelerate the rebound in memory chip prices.

“Samsung talk of production cuts is proof of the true scale of the current crisis,” said Greg Roh, head of research at Hyundai Motor Securities.

The company is due to release detailed results, including divisional breakdowns, later this month.

© Thomson Reuters 2023

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