Samsung Extends Chip Production Cuts After $7 Billion Loss

Samsung Electronics will continue to reduce memory chip manufacturing, but says the worst is over for the global market.

Reuters reported that Samsung on Thursday announced plans to extend production cuts because a demand recovery is largely constrained to high-end chips used in artificial intelligence.

It comes after Samsung earlier in July forecast a staggering 96 percent plunge in second-quarter operating profit, amidst an ongoing slump in demand for consumer electronics, including smartphones.

Samsung results

It predicted earlier in the month that its a consolidated operating profit for Q2 of approximately 600 billion Korean won ($459 million) for the April to June period, would be down from 14.1 trillion won a year earlier.

This would make it Samsung’s lowest profit for any quarter since a 590 billion won profit in the first quarter of 2009, but is roughly in line with analyst expectations.

According to Reuters, Samsung on Thursday recorded a 8.9 trillion won ($7 billion) operating loss from its chip business in the first six months of this year.

“Production cuts across the industry are likely to continue in the second half, and demand is expected to gradually recover as clients continue to destock their (chip) inventory,” Samsung, the world’s biggest memory chip maker, reportedly said in a statement.

Jaejune Kim, executive vice president of Samsung’s memory business, reportedly said on an earnings call that it would extend production cuts and make additional output adjustments for certain products including NAND flash chips, which are used to store digital data.

He did not disclose the extent of Samsung’s output cuts but noted the company’s memory chip stocks were rapidly decreasing after peaking in May.

For the June quarter, Samsung reported a 95 percent plunge in operating profit to 669 billion won, broadly in line with the company’s estimate but the second-lowest quarterly profit in 14 years.

The huge Q2 profit decline comes after Samsung in its Q1 period had reported a huge 4.58 trillion won loss in its chip business – its lowest profit in 14 years. This was due to memory chip price declines and reduction of inventory values.

Its mobile business reported a 16 percent rise in operating profit to 3.04 trillion won and expects sales growth in the second half, driven by premium products.

Chip production

It should be remembered that in April 2023, Samsung responded to the uncertain economic conditions worldwide, and said it would make a “meaningful” cut to chip production.

That decision followed similar moves by smaller rivals such as SK Hynix and Micron.

Samsung’s decision to cut chip production came amid a sharp global downturn in semiconductor demand, that had sent prices plummeting.

It also came not long after the world had faced a lengthy chip shortage – triggered by the Coronavirus pandemic, as well as Russia’s illegal invasion of Ukraine.