Samsung will reduce the production of memory chips after the worst fall in profits since 2009
Samsung Electronics announced cuts in memory chip production after reporting its lowest profit since the 2009 financial crisis, writes Bloomberg.
The world’s largest memory chip maker showed its operating profit fell more than 95% to 600 billion won ($450 million) in the first quarter. Samsung said it will cut memory chip production to a “meaningful level” to help end a supply glut that has caused prices to plummet across the industry – a move expected by rivals after a build-up of inventories hurt prices and profits.
Despite the downturn, Samsung has previously resisted production cuts, in part to win back market share from rivals SK Hynix and Micron Technology, which have also been forced to cut production. However, Samsung’s cutbacks could boost chip prices, seen as a key step in the industry’s recovery. According to Baik Gilhyun, an analyst at Yuanta Securities Co, “Because it is adjusting production and lowering memory-chip output to a meaningful level, the supply-demand situation can improve much faster”.
News of Samsung’s production cuts sent the company’s stock up 4.7%, its biggest intraday jump in three months, while Hynix jumped 6.7%. All the same, Samsung indicated it remains committed to long-term investment in the industry, saying it has scaled back short-term production plans but will continue to invest in infrastructure to provide the necessary cleanrooms and expand investment in research and development to strengthen technological leadership.
The Covid-19 pandemic has had a significant impact on the semiconductor industry, leaving many of the biggest players scrambling to keep up with market changes. Demand initially surged as stay-at-home consumers bought new computers and smartphones, but the trend quickly reversed as restrictions were lifted and the global economy hit by economic turmoil. As a result, prices for DRAM, a type of memory used for data processing, are expected to fall about 10% in the current quarter, after falling 20% in the previous three months and more than 30% in the fourth quarter of last year.
Micron, the largest U.S. maker of memory chips, said customer inventories were shrinking and predicted a gradual improvement in the supply-demand balance. Hynix executives said production cuts by memory suppliers should become more visible in the second half of the year and help support prices. However, both of Samsung’s rivals stressed that the pace of recovery would depend on their competitors’ efforts to cut supply.