Samsung will cut chip production to weather the recession; Stocks rise By Reuters

By Joyce Lee and Heekyong Yang

SEOUL (Reuters) – Samsung Electronics Co Ltd said on Friday it would make a “significant” cut in chip production, following the lead of smaller rivals, as it grapples with a sharp global slump in semiconductor demand that has sent prices down. prices.

The unusual production cut by the world’s largest memory chipmaker, with no prior announcement recalled by Samsung (KS:) officials and analysts, came after it reported a worse-than-expected 96% drop in profit. of the first trimester.

Investors played down the profit loss and bet the move by the industry leader would support chip prices that have fallen by around 70% in the past nine months.

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

Makers of smartphones and personal computers had stocked up on chips during the pandemic as demand for consumer devices surged, but are now depleting inventories as shoppers cut back on purchases amid rising inflation.

Samsung said memory demand had fallen sharply due to a weak global economy and customers slowing down purchases as they focused on depleting stocks.

“We are lowering memory chip production to a significant level, especially for products with assured supply,” he added, referring to those with sufficient inventories.

Samsung did not disclose the size of the planned production cut, but it sent a strong signal for a company that had previously said it would make small adjustments such as pauses to renew production lines, but not a full cut.

“Having the No. 1 market share company joining the production cuts lifted shares… SK Hynix and Micron (NASDAQ:) declared production cuts, but only Samsung did not, so the market was on the lookout,” John said. Park, an analyst at Daishin Securities.

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

Although it cut production in the short term, Samsung said it was still making long-term investments in infrastructure and research to ensure the clean rooms needed for chip production and expand its technology lead.

It did not say how its investment plans for 2023 would be affected, having previously flagged a capex similar to 53.1 trillion won investment in 2022.

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

CHIP LOSS RECORD

Samsung estimated its operating profit fell to 600 billion won ($455.5 million) between January and March, from 14.12 trillion won a year earlier, in a brief preliminary earnings report. It was the lowest profit for any quarter in 14 years.

First-quarter profit fell short of 873 billion won for Refinitiv SmartEstimate, weighted toward analysts who are more consistently accurate. Multiple estimates were revised lower earlier this week.

Its chip division is likely to post a record loss of 2.1 trillion won ($1.6 billion), according to average analyst forecasts, and post another 2 trillion won loss in the current quarter, a wide divergence. for what had been Samsung’s most important cash. cow, generating about half of its earnings in better years.

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

“Samsung talking about production cuts is evidence of how bad the current slump really is,” said Greg Roh, head of research at Hyundai Motor Securities.

The company is due to publish detailed earnings, including breakdowns by division, later this month.

($1 = 1,319.0000 won)