Home/ News / World/  Samsung announces ‘meaningful’ cut in chip production, shares rally

Samsung Electronics announced on Friday that it will reduce its chip production in response to a significant decline in global semiconductor demand, which has resulted in plunging prices.

As per media reports, the South Korean tech giant did not provide specific details on the extent of the production cut or which products would be affected, but stated that it would be "meaningful".

As per a report by Reuters, Samsung Electronics, the largest memory chipmaker in the world, has announced an unexpected cut in chip production with no prior notice from officials or analysts. This decision comes after the company revealed a 96% decline in first-quarter profit, which was worse than anticipated.

Meanwhile, investors are betting that the decision by the industry leader to reduce chip production will help to stabilise the plummeting chip prices, which have fallen by approximately 70% over the last nine months.

Samsung jumped 4.5% in early trading in the biggest one-day rise since September, while rival SK Hynix Inc's (000660.KS) shares surged 5.6%.

The increased demand for consumer devices during the pandemic led to smartphone and personal computer makers stockpiling chips. However, as shoppers reduce their purchases due to rising inflation, these companies are now depleting their inventories of chips.

Samsung Electronics Co Ltd attributed the decline in chip demand to a weak global economy, and also stated that customers have slowed down their purchases as they focus on utilising their existing inventories.

"We are lowering the production of memory chips by a meaningful level, especially that of products with supply secured," it added, in a reference to those with sufficient inventories.

Although Samsung did not specify the magnitude of the production cut, the announcement itself was a significant move for the company when it had indicated that it would only make minor adjustments such as temporary pauses to refurbish production lines, rather than a major cut in chip production.

"The fact that the No. 1 market share firm is joining production cuts lifted shares... SK Hynix and Micron (MU.O) have declared production cuts, but only Samsung had not, so the market was watching for it," said John Park, an analyst at Daishin Securities.

Samsung Electronics Co Ltd announced in a preliminary earnings statement that its estimated operating profit for the first quarter of 2022 had fallen to 600 billion won ($455.5 million) from 14.12 trillion won a year earlier.

Samsung's first-quarter profit fell short of Refinitiv SmartEstimate of 873 billion won, while multiple estimates were revised downwards earlier in the week.

Samsung's chip division is expected to suffer a significant loss of 2.1 trillion won ($1.6 billion), which is a record loss according to analysts' estimates.

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Updated: 07 Apr 2023, 10:25 AM IST
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