On Thursday, Samsung Electronics announced plans to extend output cuts due to a cautious prognosis for the global semiconductor market and the fact that the demand recovery is mostly limited to high-end chips used in artificial intelligence.
The action highlights the severity of the unheard-of memory chip industry downturn, which caused the South Korean company to suffer an operational loss of 8.9 trillion won ($7 billion) from its main semiconductor business in the first half of this year.
The second half of the year is likely to see more production cuts across the board, but demand is anticipated to gradually increase as customers keep their inventories of (chips) low, according to a statement from Samsung, the largest memory chip manufacturer in the world.
On an earnings call, Jaejune Kim, executive vice president of Samsung’s memory unit, informed investors that the company would extend its production cuts and make additional output adjustments for some products, including NAND flash memory chips, which are used to store digital data.
The remarks allayed worries about chip oversupply and increased shares of rival but smaller company SK Hynix by 9% and Samsung by 1.7%, respectively.
Samsung’s chip business, often the biggest cash cow for the corporation, reported a 4.36 trillion won loss for the April-June quarter. A year prior, it had announced a profit of 9.98 trillion won.
Due to robust memory chip demand from AI and higher-than-expected shipments of DRAM chips, which store data from applications while the system is in operation, chip losses significantly decreased from the first quarter’s 4.58 trillion won.
A “significant” earnings reduction was experienced by Samsung’s semiconductor contract manufacturing unit as a result of unclear short-term demand, emphasising a sluggish market for smartphones and other consumer electronics. Qualcomm, one of the leading mobile chip makers, is among the company’s clients.
The largest contract chip manufacturer in the world, TSMC of Taiwan, has cut its yearly sales forecast and warned of cost concerns as it confronts weak worldwide demand.
Chips accounted for 13.5 trillion won ($13.5 billion) of Samsung’s reported 14.5 trillion won in capital expenditures for the second quarter.
Because of reduced demand for items ranging from consumer electronics to servers that rely on semiconductors, it announced a 95% drop in earnings for the June quarter.
From 14.1 trillion won in April through June of last year, operating profit decreased to 669 billion won ($527 million).
The second-lowest quarterly profit in 14 years, that was roughly in line with the company’s expectation of 600 billion won this month.
Revenue decreased by 22% to 60 trillion won.
In comparison to the same quarter a year prior, Samsung’s mobile division generated a profit of 3.04 trillion won. It anticipated that in the second half, particularly at the premium end, the overall smartphone industry will resume yearly growth.
The world’s largest smartphone manufacturer, Samsung, introduced its most recent foldable models a day earlier. In an effort to challenge Apple’s hegemony in the high-end market, Samsung kept pricing at around the same level for a third year.