After projecting a 96% decline in its quarterly operating profit, Samsung Electronics has decided to reduce the production of memory chips.
The world’s largest manufacturer of chips reported that the slowing global economy and decreased demand following Covid were to blame for the steep decline in sales.
The South Korean electronics giant Samsung has declared that it will drastically cut back on chip production as a result of a 96% decline in profitability. The company has explained this loss as being the result of a steep decline in demand for its smartphones and a drop in the cost of its memory chips.
This announcement by Samsung comes as a surprise to many in the tech industry, as the company has long been a dominant force in the production of memory chips and smartphones. The company’s chips are used in a wide range of products, from smartphones to smart TVs, and its smartphones have been consistently popular with consumers around the world.
According to Samsung, early data indicates that operating profits decreased from 14 trillion won in January through March to 600 billion won (£366 million).
The decision to delay chip production didn’t stop the company’s stock from rising more than 4%.
“We are meaningfully reducing the production of memory chips, especially that of products with supply secured,” the South Korean tech giant asserted.
The demand for memory chips soared as consumers bought new electronics to use at home during Covid-induced lockdowns.
Although the previous chip crisis has ended, many semiconductor producers are still having difficulty maintaining a balance between their inventory and the present demand.
The demand for these finished commodities abruptly plummeted as the overall economy slowed. According to analyst Peter Hanbury of management consulting company Bain & Company, the manufacturers of these completed goods ceased ordering chips and concentrated on selling through their current inventory.
For semiconductor manufacturers farther down the supply chain, where demand was at an all-time high during the chip shortage, “this had a strong ‘bullwhip’ effect,” the author continued.
In contrast to its competitors, Samsung, the world’s largest manufacturer of smartphones, tablets, and televisions, had resisted the trend of decreasing memory chip output.
Analysts assert that the company’s announcement of a decrease in production is rare. It unveiled ambitions to establish a major semiconductor hub in South Korea for 300 trillion won over 20 years last month.
“Samsung faces a double whammy,” says Dylan Patel, principal analyst at SemiAnalysis, “as DRAM and NAND [memory chips] lose money and as their [factories’] process technology needs to be updated due to falling behind over the last couple of years.”
Investors are betting that Samsung’s declaration signals a recovery in the semiconductor sector.
“We anticipate that this inventory’s ‘digestion’ phase will be finished within the next three to six months. According to Peter Hanbury, by then the end markets will have depleted their stocks and returned to a more regular buying pattern.
The company is anticipated to disclose specific financial data later this month.
In conclusion, Samsung’s brave decision to reduce chip output is a reflection of the difficult times the IT sector is currently experiencing. However, Samsung is well-positioned to overcome these difficulties and carry on leading the electronics sector because of its emphasis on innovation and dedication to exploring new markets. Samsung will unquestionably be at the forefront of these developments, driving innovation and influencing the future of the IT industry, as the world continues to change and adapt to new technologies and trends.
