Samsung Cuts Chip Production After Profits Plunge -96% Decline In Profit.

Samsung Electronics will reduce the output of memory chips. -96% decline

After projecting a 96% decline in its quarterly operating profit, Samsung Electronics will reduce the output of memory chips. The world’s largest manufacturer of chips reported a steep decline in sales due to weak demand following Covid and a slowing global economy.

According to Samsung, early data indicates that operational earnings decreased from 14 trillion won in January through March to 600 billion won (£366 million). Samsung Electronics will reduce chip output as a result of the significant fall in semiconductor demand that has caused prices to soar.

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samsung chip — Image Credit: The Guardian

Largest memory chip manufacturer in the world

The largest memory chip manufacturer in the world said that it will reduce chip production by a “meaningful” amount after sales plummeted and it reported a 96% decline in first-quarter earnings, which was worse than anticipated. Both US-based Micron Technology and the related South Korean company SK Hynix have cut back on output.

Despite the decision to delay chip production, the company’s shares increased by more than 4%. The South Korean tech titan claimed, “We are meaningfully reducing the production of memory chips, especially that of products with supply secured.” As people purchased new devices for use at home during Covid-induced lockdowns, the demand for memory chips increased.

The chip crisis of recent years is finally gone, but many semiconductor producers are still having trouble striking a balance between their inventory and current demand. Samsung, the largest producer of smartphones, tablets, and televisions worldwide, has fought the trend to reduce memory chip output in comparison to its rivals.

How did Covid impact here?

During the Covid-19 outbreak, when people were confined to their homes during lockdowns and demand for consumer electronics rose, smartphone and personal computer manufacturers increased their procurement of chips. This caused a scarcity of chips everywhere. However, as a result of consumers limiting larger purchases in the face of the rising cost of living and rising food and energy prices, demand has decreased.

A weakening global economy and businesses purchasing fewer chips as they exhaust their inventory, according to Samsung, are to blame for the decline in demand. It has previously discussed making minor changes, such as halting output to upgrade production lines. The operational profit for any quarter in the last 14 years, according to Samsung, was 600 billion won between January and March, down from 14.12 trillion won a year earlier. Later this month, it will give a thorough financial report.

Analysts anticipate that the company’s semiconductor segment, which typically accounts for approximately half of the group’s income, would post a record quarterly loss of 2.1 trillion won. Investors ignored the production reduction announcement in the hopes that it would help chip prices, which have dropped 70% in the previous nine months.

Analysts said it is unusual for the corporation to declare a reduction in output. It revealed plans to spend 300 trillion won over 20 years to build a massive semiconductor center in South Korea last month. Investors are hoping that Samsung’s statement is a harbinger of a semiconductor market rebound.

Samsung stated that it will still invest in infrastructure and research despite the decrease. It did not specify, though, if it was continuing with its 2019 investment plans. While Micron dropped its investment projections by more than 30% in September, SK Hynix said in October that it will have more than half its capital expenditures in 2024 compared to 2022.