Samsung
Samsung could cut production at its biggest money-making business
Semiconductor Division of Samsung Electronics is known as its biggest money-making business, which could get a strategic production cut. However, the company is likely to post deficits of billions of won in the first quarter of this year amid weakening memory chip prices and higher inventories.
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According to the regulatory filing to DART by Samsung, its inventory assets reached an all-time high of 52.2 trillion won ($39.9 billion) as of the fourth quarter of last year, compared with last year’s 41.4 trillion won.
The South Korean tech titan’s chip business division accounted for the lion’s share of the total figure, with 29.1 trillion won in the same year, up nearly 12.6 trillion won from the same period tallied in 2021, the data showed.
Pent-up demand during the pandemic for home appliances, including TVs, has lost momentum, and aggressive rate hikes in major economies have significantly weakened consumer spending power.
This situation, on top of the inventory surge, has resulted in a sharp drop in chip prices. Market watchers believe the prices of PC DRAM and NAND memory chips are reportedly getting closer to their costs.
- KB Securities forecast the prices of DRAM and NAND chips will drop by a further 19 percent and 18 percent, respectively, in the January-March 2023 period.
While falling chip prices and soaring inventories affect Samsung’s earnings, the company is expected to take a turn into the red in this first quarter, logging operating losses of between 1.91 trillion won and 4.47 trillion won, reports FnGuide.
Despite witnessing a sharp drop in chip profits, Samsung maintains it will not be “artificially” cutting output and will keep up investment in its chips business. However, it has hinted at the possibility of a “natural” reduction through process conversion.
At Wednesday’s shareholder’s meeting, the company shared a downbeat forecast for its chip business this year but said it will continue to invest to secure clean rooms and technology advances in its efforts to “turn misfortune into advantage.”
“We will be flexible in executing infrastructure investment given volatile market conditions. We’re also planning to enhance our investment efficiency and improve the corporate structure.” Said Lee Jung-bae, president of Samsung’s device solution division.
Samsung and SK Hynix might reduce their production further to prevent soaring inventory assets and boost semiconductor prices. Market watchers say that reducing supply is the way to accelerate rebound in their chip businesses.