Samsung Electronics, the world’s largest memory chip maker, has announced plans to extend production cuts in response to the surge in demand for high-end chips used in artificial intelligence (AI). The company cited a constrained recovery in demand, particularly in the AI segment, as the reason for its cautious outlook on the global semiconductor industry.
The ongoing downturn in the memory chip industry has had a significant impact on Samsung’s chip business, resulting in a record operating loss of 8.9 trillion won ($7 billion) in the first half of this year. To address the challenging market conditions, Samsung will continue with production cuts in the second half, while expecting a gradual recovery in demand as clients destock their chip inventory.
Jaejune Kim, executive vice president of Samsung’s memory business, revealed that the company would extend its production cuts and make additional output adjustments for certain products, including NAND flash memory chips used for digital data storage. These measures aim to align production with the prevailing market demand.
The announcement from Samsung has alleviated concerns surrounding chip oversupply and boosted investor confidence, leading to a 1.7% increase in Samsung shares and a significant 9% surge in shares of its smaller rival SK Hynix.
In the April-June quarter, Samsung’s chip division reported a loss of 4.36 trillion won, highlighting the continued divergence from its traditionally profitable chip business. The loss narrowed slightly compared to the first quarter due to higher-than-expected shipments of DRAM chips driven by AI-related demand.
However, Samsung’s chip contract manufacturing business, which serves mobile chip designers like Qualcomm, experienced a significant decline in profit due to uncertainties in short-term demand. This underscores the weak market conditions for smartphones and other consumer electronic devices.
The world’s largest contract chipmaker, Taiwan Semiconductor Manufacturing Company (TSMC), has also lowered its annual sales guidance and warned of cost challenges amid poor global demand.
Samsung’s capital expenditures for the second quarter amounted to 14.5 trillion won, with the majority invested in chip production. Despite output cuts aimed at balancing supply and demand, the company’s profits for the June quarter plummeted by 95% to 669 billion won ($527 million), marking the second-lowest quarterly profit in 14 years. Revenue also declined by 22% to 60 trillion won.
On a more positive note, Samsung’s mobile business recorded a profit of 3.04 trillion won in the June quarter, up from 2.62 trillion won in the same period last year. The company anticipates a return to year-on-year growth in the overall smartphone market, especially in the premium segment.
Samsung’s recent unveiling of its latest foldable smartphones, priced similarly to previous models, indicates its aims to challenge Apple’s dominance in the high-end market.
These developments highlight the challenges faced by Samsung and the broader semiconductor industry amid a prolonged downturn. While demand in the AI segment shows some promise, uncertainties persist in the short-term market conditions for consumer gadgets. Both Samsung and its competitors continue to grapple with supply-demand imbalances, cost pressures, and the need to navigate through a rapidly evolving technological landscape.
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