Samsung to cut memory chip production as profit slides

Amid the ongoing semiconductor crisis, Samsung Electronics, the world's leading memory chipmaker, has officially declared a reduction in memory semiconductor production. The company has shifted its stance from its previous assertion of no "artificial reduction," as first-quarter operating profit this year plummeted by 95.8% compared to the same period last year, mainly due to the semiconductor business deficit.

The company reported on Friday that it had posted consolidated sales of 63 trillion won and an operating profit of 600 billion won for the first quarter. The figures indicate a 10.6% decline in sales and an 86.1% drop in operating profit compared to the previous quarter. Compared to the first quarter of last year, sales and operating profit have decreased by 19.0% and 95.8%, respectively. The results fall short of the recent operating profit forecast (one trillion won) by the securities market, marking the company's lowest performance in 14 years since the first quarter of 2009.

Although Samsung Electronics did not disclose its performance by business division on the day, the industry anticipates a 3 to 4 trillion won deficit in the semiconductor business (DS) division. The persistent downturn in IT demand caused by the stagnant inventory level of its clients and the ongoing decline in memory semiconductor prices have contributed to the shortfall. The company attributed the "deteriorating performance, primarily in the component division, to the continued IT demand downturn." It also reported a decline in system semiconductors and display performance compared to the previous quarter, resulting from the economic downturn and off-season effects.

The electronics giant formalized its decision to reduce semiconductor production on Friday. The company explained that it had been "securing production quantity in anticipation of a decrease during the transition to the next process with higher difficulty" and was now "lowering memory production to a meaningful level, mostly for products of which supply volume is secured."

This announcement of production cuts by Samsung, the No. 1 in the memory chips market, follows similar moves by SK hynix, Micron, and Kioxia, which began reducing production last year. However, Samsung Electronics stressed that "despite the downward adjustment of short-term production plans, steady demand is expected in the medium to long term." The company also emphasized its commitment to "continuing investment in infrastructure for securing essential cleanrooms and expanding the proportion of research and development (R&D) investment to reinforce technology leadership."

Samsung Electronics is set to announce confirmed results, including performance by business divisions, at the end of this month.


will@donga.com