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Saturday, June 10, 2023

Shares Rise as Samsung Reduces Chip Production to Shield Itself from Downturn

Samsung's operating profit decreased to 600 billion won ($455.5 million) in January-March

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SOUTH KOREA: Samsung Electronics Co Ltd announced on Friday that it would make a “meaningful” reduction to chip manufacturing, following the path of smaller rivals. Before the unprecedented output reduction, there was no prior notice after it reported a 96% decline in first-quarter profit.

Investors ignored the missed profit of the dominant player in the chip market, SK Hynix Inc. rose 5.6% while Samsung’s stock increased 4.5% in early trading, marking the largest one-day gain since September.

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Smartphone and PC manufacturers had loaded up on chips during the epidemic but are now depleting supplies due to growing prices. Samsung has announced that it is reducing the production of memory chips by a meaningful level, especially for products with significant stocks.

This is a strong message to businesses that had previously stated they would only make minor changes, such as pauses for repairing manufacturing lines. Samsung is investing in infrastructure and research to secure clean rooms and increase its technological advantage.

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Micron decreased its investment projections for the fiscal year 2023 by 30%, while SK Hynix announced that it would increase its capital expenditure by more than half compared to 2022.

Chip loss on record

Samsung’s operating profit decreased to 600 billion won ($455.5 million) in January-March from 14.12 trillion won a year earlier, the lowest in 14 years.

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The first-quarter profit was below the 873 billion won Refinitiv SmartEstimate. Analysts suggest the chip division will likely post a record loss of 2.1 trillion won ($1.6 billion) and another 2 trillion won loss in the current quarter.

Samsung’s production reduction may have a minor positive impact on its performance in the current quarter and help to accelerate or cement the price recovery of memory chips.

Also Read: Space Exploration: USA Still Holds Lion’s Share in Space Budgets


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