After a worse-than-anticipated 96% drop in quarterly operating profit, Samsung Electronics announced on Friday that it would make a “meaningful” cut to chip production as the global semiconductor market’s sharp decline continues.
In the early hours of trading, investors applauded plans to reduce production in order to preserve pricing power, which led the rival SK Hynix’s shares to soar 5% while the shares of the world’s largest TV and memory chip manufacturer rose 3%.
In a brief preliminary earnings statement, Samsung (SSNLF) estimated that its operating profit decreased to 600 billion won ($455.5 million) in January-March from 14.12 trillion won a year earlier. It was the most minimal benefit for any quarter in 14 years.
“Memory demand dropped sharply … due to the macroeconomic situation and slowing customer purchasing sentiment, as many customers continue to adjust their inventories for financial purposes,” it said in the statement.
“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.
The production cut signal is major areas of strength for surprisingly Samsung, which recently said it would make little changes like stops for revamping production lines however not a full-blown cut.
The proposed cut’s size was not made public.
The Refinitiv SmartEstimate, which is weighted toward analysts who are more consistently accurate, predicted that the first-quarter profit would fall short of 873 billion won. This week, a number of estimates were revised lower.
According to company data, it was the lowest since a profit of 590 billion won in the first quarter of 2009.
Data center operators, smartphone and personal computer manufacturers, and other semiconductor buyers are refraining from purchasing new chips and are using up inventories as a result of the sluggish consumer demand for tech devices caused by rising inflation.
As memory chip prices dropped and inventory values were reduced, analysts estimated that the chip division suffered quarterly losses of more than 4 trillion won (about $3.03 billion).
This would be the chip business’ first quarterly misfortune starting from the first quarter of 2009, a significant difference for what is regularly a cash cow that produces about half of Samsung’s benefits in better years.
According to Samsung, revenue likely decreased by 19% to 63 trillion won from the same period last year.
Later this month, the company will release detailed earnings, including divisional breakdowns.