Samsung Electronics will cut chip production as it faces a sharp drop in global demand for semiconductors that has driven prices down.
The world’s biggest memory chipmaker said it would make a “significant” cut in chip production after sales fell sharply and signaled a worse-than-expected 96% drop in first-quarter profit. South Korean firm SK Hynix and US Micron Technology have also cut production.
“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.
Smartphone and personal computer makers increased chip purchases during the Covid-19 pandemic, when demand for consumer electronics soared as people were stuck at home during lockdowns. This led to a global chip shortage. However, demand has fallen as consumers cut back on larger purchases amid the cost-of-living crisis, with skyrocketing food and energy bills.
Samsung said demand had fallen due to a weaker global economy as companies buy fewer chips as inventories deplete.
“We are lowering memory chip production to a significant level, especially for products with assured supply,” the company said, referring to customers with sufficient inventories.
He had previously talked about making small adjustments, such as pausing production to revamp production lines.
Samsung estimated that its operating profit fell to 600 billion won between January and March, from 14.12 trillion won a year earlier, the lowest profit of any quarter in 14 years. It will report detailed figures later this month.
Analysts forecast its chip division, which typically generates about half of the group’s profits, to post a record loss of 2.1 trillion won in the quarter.
Investors shrugged off the news of the production cuts as they hope the production cut will support chip prices, which have fallen 70% in the last nine months.
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John Park, an analyst at Daishin Securities, said: “The fact that the number one company in market share joined the production cuts boosted the shares. SK Hynix and Micron have declared production cuts, but only Samsung has not, so the market was on the lookout.
“Today’s production cut signal casts a positive outlook for a memory chip rebound in the second half of the year.”
Despite the cut, Samsung said it would continue to invest in infrastructure and research. However, he did not say whether he was sticking to his investment plans for this year. SK Hynix said in October it would more than halve its capex in 2023 compared to 2022, while Micron cut its investment plans by more than 30% in September.
