Samsung’s semiconductor business records first deficit in 14 years

Samsung Electronics suffered an earnings shock in the first quarter of this year, with operating profit plummeting 95.8% from the previous year to just 600 billion won. This steep decline was mainly caused by the semiconductor business sector, which recorded a loss for the first time in 14 years due to the ongoing challenges faced by the industry. In response to the worsening business conditions, Samsung announced its first-ever reduction in memory semiconductor production. Due to the sluggish semiconductor exports, the current account balance shows a deficit for two consecutive months in February for the first time in 11 years. As a result, there are concerns about the stability of strategic industries, and a sense of unease is hanging over the Korean economy.

The company’s quarterly operating profit dropped below 1 trillion won for the first time in 14 years, since the first quarter of 2009. While it has not provided detailed performance figures by business division, DRAM and NAND flash sales are believed to be lower than anticipated, resulting in an estimated deficit of 3 to 4 trillion won for the semiconductor division. To address the more severe economic downturn than initially projected, Samsung Electronics has officially announced a reduction in memory semiconductor production. Despite falling prices, the company has maintained its position that it will not artificially cut production to maintain its market dominance.

The decline in semiconductor exports is having a ripple effect on the external soundness of the Korean economy, as reflected in the current account balance. In February, the current account deficit was 520 million U.S. dollars, marking the first time in 11 years that a deficit was recorded for two consecutive months since January and February of 2012. The goods balance, which makes up the largest portion of the current account balance, saw a deficit of 1.3 billion dollars, with a deficit recorded for five consecutive months. This was largely driven by a 41.5% drop in semiconductor exports, a key item for the Korean economy. Major foreign investment banks (IBs) predict that even a 1% growth of the Korean economy this year is at risk due to the slowdown in exports and domestic demand.

A breakthrough in this crisis lies in the recovery of exports by securing technological competitiveness in strategic industries, such as semiconductors. However, the efforts of individual businesses alone are not sufficient. In the current global landscape, there are numerous hurdles, including intense hegemonic competition between the U.S. and China, and a growing trend of prioritizing one's own country. The U.S. has introduced the CHIPS Act and the Inflation Reduction Act (IRA) to protect its own industries, including semiconductors, electric vehicles, and batteries, and to limit competition. The European Union (EU) has also responded with the Critical Raw Materials Act and the Net-Zero Industry Act. Export issues cannot be viewed simply as economic issues. For example, the U.S. government recently put a brake on Korea's nuclear power plant exports to the Czech Republic.

The development of strategic industries, such as semiconductors, is a critical task for a nation, directly related to its security and survival. The government, politicians, and businesses must work together to achieve this goal. This requires various measures, including tax incentives, R&D support, talent development, and regulatory improvements. Currently, there is a pressing need for a strategy to ease the challenging investment requirements related to key industries such as semiconductors and batteries at the upcoming Korea-U.S. summit, scheduled to take place in the U.S. at the end of this month.