In response to a dramatic drop in worldwide demand for semiconductors that has caused prices to soar, Samsung Electronics will reduce chip output, Entrepreneurng report.
The largest memory chip manufacturer in the world announced that it would reduce chip production by a “meaningful” amount following a dramatic decline in sales and an unexpectedly large 96% decline in first-quarter profits. SK Hynix, a company from South Korea, and Micron Technology, a US company, have both cut back on output.
Greg Roh, the head of research at Hyundai Motor Securities, said that Samsung’s announcement of production reductions “is an indication of how serious the current slump is.
The Covid-19 epidemic saw a spike in demand for consumer electronics as individuals were forced to stay at home during lockdowns, which led smartphone and personal computer manufacturers to increase their chip purchases.
A global scarcity of chips resulted from this. The cost of the living problem, with rising food and energy prices, has caused consumers to hold off on larger purchases, which has reduced demand.
In addition to businesses buying fewer chips as they deplete their stockpiles and a worse global economy, according to Samsung, demand has decreased.
“When speaking to customers that have enough stockpiles, the business stated, “We are lowering the production of memory chips by a meaningful level, especially that of products with supply secured.”
In the past, it had mentioned making minor changes like halting output to upgrade production lines.
Between January and March, according to Samsung, operating profit decreased to 600 billion won from 14.12 trillion won a year earlier, marking the lowest profit in any quarter in 14 years. Later this month, it will provide detailed data.
The semiconductor division, which typically contributes to half of the company profits, is expected to post a record loss of 2.1 trillion won for the quarter, according to analysts.
Investors ignored the announcement of the production cuts because they believed the output reduction would help chip prices, which had dropped 70% in the past nine months.
The fact that the company with the largest market share is supporting output cuts, according to John Park, an analyst at Daishin Securities, “lifted shares.” The market was waiting for Samsung to announce production cuts because SK Hynix and Micron had already done so, but only Samsung had not.
The production cut signal from today is encouraging a recovery in memory chip prices in the second half of the year.
Conclusion
Samsung stated that it would still invest in infrastructure and research despite the cut. It did not specify, though, if it was continuing with its 2019 investment plans. While Micron dropped its investment projections by more than 30% in September, SK Hynix announced in October that it will have more than half its capital expenditures in 2023 compared to 2022.
