SEOUL - Samsung Electronics pledged to curtail memory chip production while projecting a rebound in electronics demand during the second half, reinforcing expectations that global tech spending is beginning to climb out of a post-Covid-19 funk.
Samsung, which on Thursday reported better-than-expected net income, said it expected artificial intelligence-driven demand to kick in before the year end and that it expects gradual recovery in memory demand in the second half.
South Korea’s largest company plans to double its capacity to make high-bandwidth memory (HBM), a next-generation technique said to work better with chips for training AI, by 2024.
But the company said it would continue to cut memory chip output in 2023, especially of its Nand chips, a type of memory used for storage in smartphones and computers, even while saying that overall memory inventory seems to have peaked in May.
It also said it would not provide a bit shipment guidance for the full year, citing macroeconomic uncertainties.
Samsung’s shares rose more than 2 per cent on Thursday morning. Smaller rival SK Hynix’s shares jumped as much as 9.1 per cent.
The company, a bellwether for the industry because of its leading position in chips, electronics and smartphones, said its net income fell 86 per cent to 1.55 trillion won (S$1.6 billion) in the quarter that ended in June. That still beat an average estimate of 925 billion won, thanks to a lift from a weak won.
Earlier in July, Samsung reported its worst decline in quarterly revenue in more than a decade.
SK Hynix, which already supplies HBM to Nvidia, will likely be the bigger beneficiary of any demand for chips to help develop and train generative AI platforms such as OpenAI’s ChatGPT, analysts said.
On Wednesday, SK Hynix reported sales ahead of estimates and declared that AI will soon ignite the long-awaited rebound.
“SK Hynix results yesterday left no room for doubt as to who is the leader in this space,” CLSA Securities Korea analyst Sanjeev Rana said.
Samsung is now trying to catch up and ride the AI wave. Of its entire quarterly capital expenditure of 14.5 trillion won, more than 90 per cent was spent on chips, it said.
Investors are looking to the tech industry’s largest companies for hints on when demand for electronics and semiconductors will bounce back – a challenging task given the uneven global outlook, soaring inflation and China’s post-Covid-19 turbulence.
In particular, Samsung is a barometer for a US$160 billion (S$211 billion) memory industry that built capacity too rapidly during better times and is now grappling with bulging inventories. Its output cuts represent a significant step for a company that in the past continued production through industry downturns.
Samsung’s results come after Taiwan Semiconductor Manufacturing Co cut its outlook last week and postponed production at its Arizona project to 2025 – a warning signal that underscores the extent of the uncertainty roiling the global chip arena.
Still, the cyclical industry has moved to shore up prices, helping to prop up Samsung and its peers.
Samsung has gained some 26 per cent in 2023, buoyed by the concerted effort to deplete inventories of chips and hope surging AI demand will drive orders for HBM and top-line DDR5 chips.
Apart from semiconductors, Samsung’s smartphone business – the world’s largest – is fighting to entice customers. It now expects its smartphone shipments to rise in the current quarter, and average prices to rise.
Samsung introduced the fifth generation of its foldable smartphones on Wednesday, seeking to counter upcoming rival products from Apple. It is also studying a lower-cost option, seeking to win market share in the increasingly popular foldable phone category. BLOOMBERG
