SEOUL: Samsung Electronics on Thursday struck a cautious note on the global semiconductor outlook, announcing plans to extend production cuts because a demand recovery is largely constrained to high-end chips used in artificial intelligence.
The move underscores the depth of the unprecedented memory chip industry downturn that led the South Korean firm to incur a record 8.9 trillion won ($7 billion) operating loss from its bread-and-butter 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, said in a statement.
Jaejune Kim, executive vice president of Samsung’s memory business, told analysts on an earnings call that it would extend its production cuts and make additional output adjustments for certain products including NAND flash memory chips, which are used to store digital data.
The comments eased concerns about chip oversupply and boosted Samsung shares by 1.7% and smaller rival SK Hynix’s shares by 9%. Samsung’s chip division reported a 4.36 trillion won loss in the April-June quarter, a continued divergence for what is normally the company’s most important cash cow.
It had reported a 9.98 trillion won profit a year earlier. Chip losses shrank slightly from the first quarter’s 4.58 trillion won due to strong memory chip demand from AI, which led to higher-than-expected shipments of DRAM chips that hold information from applications while the system is in use.
Samsung’s chip contract manufacturing business, which counts mobile chip designers such as Qualcomm as clients, fared worse, experiencing a “significant” profit decline due to uncertainties in short-term demand, underscoring a weak market for smartphones and other consumer gadgets.
Taiwan’s TSMC, the world’s largest contract chipmaker, lowered its annual sales guidance this month and warned of cost challenges as it battles poor global demand.
Samsung said it spent 14.5 trillion won in capital expenditures during the second quarter, of which 13.5 trillion won was spent on chips.
It reported a 95% plunge in June quarter profit, as the chip industry’s downturn persisted despite output cuts because of weaker demand for products reliant on semiconductors from consumer gadgets to servers.
Operating profit fell to 669 billion won ($527 million) in April-June, from 14.1 trillion won a year earlier.
That was broadly in line with the company’s estimate of 600 billion won this month, and was the second-lowest quarterly profit in 14 years. Revenue fell 22% to 60 trillion won.
Samsung’s mobile business reported a 3.04 trillion won profit in the June quarter, up from 2.62 trillion won a year earlier. It forecast the overall smartphone market would return to year-on-year growth in the second half, especially at the premium end.
A day earlier, Samsung, the world’s largest smartphone vendor, unveiled its latest foldable smartphones, keeping prices at about the same level for a third year as it seeks to challenge Apple’s dominance in the high-end market.
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