Samsung to Cut Chip Production After 14-year Low Profit

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

Shares in the world’s largest memory chip and TV maker rose 3% in early trading, while rival SK Hynix Inc’s shares surged 5% as investors welcomed plans to cut production to help preserve pricing power.

Samsung estimated its operating profit fell to 600 billion won ($455.5 million) in January-March, 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.

“Memory demand dropped sharply… due to the macroeconomic situation and slowing customer purchasing sentiment, as many customers continue to adjust their inventories for financial purposes,” the company said in a statement.

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

The production cut signal is unusually strong for Samsung, 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 first-quarter profit fell short of a 873 billion won Refinitiv SmartEstimate, weighted toward analysts who are more consistently accurate. Multiple estimates were revised down earlier this week.

It was the lowest since a 590 billion won profit in the first quarter of 2009, according to company data.

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 and using up inventories.

Analysts estimated the chip division sustained quarterly losses of more than 4 trillion won ($3.03 billion) as memory chip prices fell and its inventory values were slashed.

This would be the chip business’ first quarterly loss since the first quarter of 2009, a major divergence for what is normally a cash cow that generates about half of Samsung’s profits in better years.

Revenue likely fell 19% from the same period a year earlier to 63 trillion won, Samsung said.

The company is due to release detailed earnings, including divisional breakdowns, later this month.

($1 = 1,317.2300 won)

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(This story has not been edited by News18 staff and is published from a syndicated news agency feed)