Factory of Samsung Electronics
Samsung operates huge chip factories in South Korea. But their utilization is low, because the demand for electronic items is weak.
(Photo: Bloomberg/Getty Images)
Tokyo The semiconductor division of the world’s largest manufacturer of memory chips has not been hit that hard for 14 years. Samsung Electronics announced on Friday that, contrary to previous announcements, it would sharply reduce the production of memory chips in the short term, because demand had collapsed. The Group also estimates that its operating profit fell to 0.5 to 0.7 trillion won (350 to 490 million euros) in the first quarter of 2023, around 96 percent less than a year earlier.
As usual, the Group did not disclose the expected net profit or the results of the business units in its first balance sheet estimate. But analysts mainly blame the electronics group’s previous profit engine, the memory chip division, for the slump.
Driven by the high demand for smartphones and data centers, the division has contributed up to a quarter to the Group’s operating profit in recent years, which is also the largest smartphone and one of the largest TV manufacturers in the world. However, according to a survey by the Korean news agency Yonhap, analysts expect a loss of three to four trillion won (two to 2.8 billion euros) for the first quarter.
This would be the first loss of the company’s chip division since 2009. Joanne Chiao from Taiwanese technology analyst TrendForce blames a consumer hangover after the corona pandemic for this. “After many people have stocked up on electronics in recent years, they now prefer to spend their money on travel,” she explains.
Therefore, the warehouses of Samsung sellers have filled up with TVs and other devices. The dismantling of these warehouses exacerbates the lame demand. This is also reflected in Samsung’s sales, which fell by around 19 percent year-on-year to 62 to 64 trillion won (43 to 44.4 billion euros).
Production is severely restricted
This double blow is now forcing Samsung to reduce its production unusually drastically. “We are adjusting memory production to a reasonable level for products for which we have built up enough inventories to meet future demand,” the company explained.
Analysts predict that the industry is likely to reach the bottom of semiconductor production this quarter. Many companies expect a recovery only in the second half of the year. However, their strength is controversial.
While some experts expect a strong upswing, Taiwanese analyst Chiao does not believe in it. “If I look at the demand for electronic devices, the recovery will not be very strong.” Instead, only the replenishment of the heavily depleted stocks will boost the demand for chips, ” not the final demand”.
The big question will be whether Samsung and its rivals in the chip crisis will also scale back their investments in new factories. At Samsung, the main focus is on expanding contract manufacturing, the foundry business. Here, the Koreans want to catch up with the world market leader TSMC from Taiwan. But the global foundry market is also shrinking. Analyst Chiao expects sales to decline by four percent by 2023.
More: Japan joins US chip restrictions against China.