Samsung cuts production to address a global memory chip glut as profits decline

Samsung Electronics said it would make a “meaningful” cut in memory chip production in a significant move to relieve an industry glut as its quarterly operating profit plunged 96 percent to a 14-year low.

The long-awaited action comes as the South Korean company’s semiconductor division is estimated to have incurred billions of dollars in losses in the first three months of this year as a global economic slowdown dampened demand for chips.

Memory chip losses are likely to continue in the second quarter as inventories remain at record levels, adding pressure to chip prices. Technology demand remains sluggish in the face of inflation and interest rate hikes after the pandemic-era boom.

The world’s largest maker of memory chips, smartphones and television sets reported operating profit for the first quarter of an estimated 600 billion won ($455.5 million), compared to an operating profit of 14.12 trillion won a year earlier. It was well below a won analyst forecast of 1.45 trillion won compiled by Bloomberg, the smallest profit since 2009, during the global financial crisis. Sales fell 19 percent to 63 trillion won.

“Memory demand has fallen sharply… due to the macroeconomic situation and slowing customer buying sentiment, as many customers continue to adjust their stocks for financial purposes,” Samsung said on Friday.

Prices for Dram memory chips, used in computers, phones and servers, fell about 20 percent in the January-March quarter, while those for Nand flash memory chips fell 10-15 percent, according to market research firm TrendForce. Chip prices are expected to fall another 5-15 percent in the current quarter.

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Inventory at Samsung swelled to 52.2 trillion won at the end of last year, but the company earlier resisted pressure to cut production while rivals like Micron, Kioxia and SK Hynix cut theirs to adjust to oversupply.

Analysts estimate Samsung’s chipset losses in the first quarter at more than 3 trillion won but expect prices to rebound in the second half of this year. Micron and SK Hynix executives are optimistic about a market rebound later this year, but caution that the pace of recovery depends on industry efforts to reduce supply.

said Daniel Kim, an analyst at Macquarie Financial Group, who expects Samsung to cut production this year by more than 25 percent. “The recovery of the market is now a matter of time. It will probably come in the third or fourth quarter.”

Samsung’s announcement boosted its shares 3.5 percent and SK Hynix shares 5.6 percent on Friday morning in Seoul, while the Kospi Composite Index rose 1 percent.

Samsung did not disclose the size of the production cut in the short term, but said it would continue its long-term investment plans for its infrastructure and expand research and development spending.

Last month, the company announced a plan worth 300 trillion won to invest in its chip-making base over the next two decades, as the country prepares for an escalating global chip war.

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