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Samsung cuts output to tackle global memory chip glut as profits tumble

Samsung Electronics mentioned it will make a “significant” minimize in reminiscence chip manufacturing in a major transfer to ease an business glut as its quarterly working revenue plunged 96 per cent to the bottom in 14 years.

The long-anticipated motion comes because the South Korean firm’s semiconductor division is estimated to have suffered billions of {dollars} of losses within the first three months of this yr because the slowing international economic system saps demand for chips.

The reminiscence chip losses are prone to proceed within the second quarter as inventories stay at file ranges, piling strain on chip costs. Tech demand stays sluggish within the face of inflation and better rates of interest after the pandemic-era surge.

The world’s largest producer of reminiscence chips, smartphones and TVs flagged its first-quarter working revenue at an estimated Won600bn ($455.5mn), in contrast with an working revenue of Won14.12tn a yr earlier. It fell far in need of a Won1.45tn analyst forecast compiled by Bloomberg and is the smallest revenue since 2009, through the international monetary disaster. Gross sales fell 19 per cent to Won63tn.

“Reminiscence demand dropped sharply . . . as a result of macroeconomic scenario and slowing buyer buying sentiment, as many shoppers proceed to regulate their inventories for monetary functions,” Samsung mentioned on Friday.

Costs of Dram reminiscence chips, utilized in computer systems, telephones and servers, fell about 20 per cent within the January-March quarter, whereas these of Nand flash reminiscence chips fell 10-15 per cent, in keeping with market analysis agency TrendForce. Chip costs are anticipated to fall one other 5 to fifteen per cent within the present quarter.

Stock at Samsung ballooned to Won52.2tn on the finish of final yr, however the firm had earlier resisted strain to chop output whereas rivals reminiscent of Micron, Kioxia and SK Hynix have slashed their manufacturing to regulate to the oversupply.

Analysts estimate Samsung’s first-quarter chip losses at greater than Won3tn however count on a value restoration within the second half of this yr. Micron and SK Hynix executives are optimistic a couple of market revival later this yr however have cautioned that the tempo of the restoration is dependent upon the business’s efforts to chop provide.

“Samsung ought to have joined the manufacturing minimize earlier, however it’s now sending a transparent sign to the market and reminiscence consumers,” mentioned Daniel Kim analyst on the Macquarie monetary group, who expects Samsung to scale back output this yr by greater than 25 per cent. “The market restoration is now a matter of time. It is going to most likely come within the third or fourth quarter.”

Samsung’s announcement boosted its shares 3.5 per cent and SK Hynix shares 5.6 per cent on Friday morning in Seoul, whereas the Kospi Composite index gained 1 per cent.

Samsung didn’t reveal the scale of its short-term output minimize, however mentioned it will proceed with its longer-term funding plans for its infrastructure and develop analysis and improvement spending.

Final month, the corporate introduced a Won300tn plan to spend money on its chipmaking base over the following twenty years, because the nation prepares for the intensifying international chip struggle.