Samsung to cut chip output after posting worst results since 2009

SEOUL – Samsung Electronics on Friday said it would make a “meaningful” cut to chip production after flagging a worse-than-expected 96 per cent plunge in quarterly operating profit, as a sharp downturn in the global semiconductor market deepens.

This is the slimmest profit posted by the world’s biggest memory chipmaker since the 2009 global financial crisis.

The rare announcement of an output cut by Samsung, which had resisted the broader industry trend of a steep investment reduction, underscored the depth of the current market downturn but also lifted hopes of a faster market recovery.

“Samsung’s output cut is a meaningful move,” said Mr Lee Seung-Woo, an analyst at Eugene Investment and Securities. “Samsung’s output cut will likely move memory spot prices soon. There is almost no demand right now.”

Samsung said memory chip demand had dropped sharply because of a weak global economy and customers slowing purchases as they focused on using up inventories.

“We are lowering the production of memory chips by a meaningful level, especially that of products with supply secured,” it added, referring to those with sufficient inventories.

The production-cut signal was unusually strong for the company, which previously said it would make small adjustments like pauses for refurbishing production lines but not a full-blown cut.

It did not disclose the size of the planned cut.

“The fact that the industry’s market share No. 1 firm is joining production cuts lifted shares... SK Hynix and Micron have declared production cuts, but only Samsung had not, so the market was waiting for it,” said Mr John Park, an analyst at Daishin Securities.

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

Samsung estimated that its operating profit fell to 600 billion won (S$605 million) in the January to March period, from 14.12 trillion won a year earlier, in a short preliminary earnings statement. It was the lowest profit for any quarter in 14 years.

The first-quarter profit fell short of an 873 billion won projection by Refinitiv SmartEstimate, weighted towards analysts who are more consistently accurate. Multiple estimates were revised down earlier this week.

Samsung’s chip division is likely to report a record loss of 2.1 trillion won, according to an average of analyst forecasts, and post another two 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.

With consumer demand for tech devices sluggish due to rising inflation, semiconductor buyers including data centre operators and smartphone and personal computer makers are refraining from new chip purchases.

Prices of DRAM – a type of memory used to process data – are expected to fall in the current quarter by around 10 per cent, according to Yuanta Securities analyst Baik Gilhyun. That follows a roughly 20 per cent slide in the previous three months and a more than 30 per cent drop in the fourth quarter of 2022.

Micron, the largest US maker of memory chips, has said customer inventories are declining, and predicted gradual improvements to the supply-demand balance.

Hynix executives have said production cuts by memory suppliers should take effect in the second half and help prop up prices.

But the two Samsung rivals underscored the pace of the recovery will hinge on peers’ efforts to cut supply.

Analysts said Samsung’s short-term 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 has signalled it will cut production this time, and if it is really meaningful, the second quarter is expected to be better than the first quarter,” said Mr Greg Roh, head of research at Hyundai Motor Securities.

“Fixed prices of DRAM memory chips are also expected to rebound from the third quarter... Samsung talking about production cuts is evidence of how bad the current slump really is,” he added. REUTERS, BLOOMBERG