(Reuters) — Samsung Electronics said on Friday it would make a “significant” cut in chip production after pointing to a worse-than-expected 96% drop in quarterly operating profit as a sharp slump in the global semiconductor market worsens.
Shares of the world’s largest TV and memory chip maker rose 3% in early trading, while shares of rival SK Hynix rose 5% as investors welcomed plans to cut production. to help preserve pricing power.
Samsung estimated its operating profit fell to 600 billion won ($455.5 million) in January-March, from 14.12 trillion won a year earlier, in a brief preliminary earnings report. It was the lowest profit for any quarter in 14 years.
The Samsung Electronics semiconductor manufacturing plant in Pyeongtaek, Gyeonggi province, in January 2022. (Credit: SeongJoon Cho/Bloomberg/Getty Images)
“Memory demand has fallen sharply…due to the macroeconomic situation and slowing customer buying sentiment, as many customers continue to adjust their inventories for financial purposes,” it said in the statement.
“We are lowering the production of memory chips at a significant level, especially products with assured supply,” he added, referring to those with sufficient inventories.
The production cut signal is unusually strong for Samsung, which previously said it would make small adjustments such as pauses to renew production lines, but not a complete cut.
Samsung did not disclose the size of the planned outage.
First-quarter profit fell short of 873 billion won for Refinitiv SmartEstimate, weighted toward analysts who are more consistently accurate. Multiple estimates were revised lower earlier this week.
It was the lowest since a profit of 590 billion won in the first quarter of 2009, according to company data.
With consumer demand for tech gadgets sluggish due to rising inflation, semiconductor buyers, including data center operators and makers of smartphones and personal computers, are refraining from buying new chips and Inventories are depleted.
Analysts estimated that the chip division suffered quarterly losses of more than 4 trillion won (US$3.03 billion) as memory chip prices fell and its inventory values fell sharply.
This would be the first quarterly loss for the chip business since the first quarter of 2009, a major divergence for what is normally a cash cow that generated about half of Samsung’s profits in better years.
Revenue likely fell 19% from the same period a year earlier to 63 trillion won, Samsung said.
The company is due to publish detailed earnings, including breakdowns by division, later this month.
