Samsung, one of the biggest electronics brands in the world, is now struggling to handle its chip production arm as its shares plunge by 96%.
The Korean giant is sitting on huge inventories after a build-up to meet the expected pent-up demand post-COVID did not materialise.
Samsung’s initial thoughts on its performance in the last quarter are gloomy.
In response, the company is now set to make “meaningful cuts” driven by a slowdown in the global semiconductor market.
In a preliminary earnings statement, the world’s largest memory chip and TV maker estimated that its operating profit fell to $455.5 million in January-March, marking the lowest profit for any quarter in 14 years.
The company plans to cut the production of memory chips with products with tight supply and sufficient inventories.
The move is a strong signal from Samsung, which had previously said it would only make small adjustments like pauses for refurbishing production lines, but not a full-blown cut.
It did not disclose the size of the planned cut. The first-quarter profit fell short of a $733.3 million Refinitiv SmartEstimate, which was weighted towards more consistently accurate analysts.
With consumer demand for tech devices sluggish due to rising inflation, semiconductor buyers, including data centre operators and smartphone and personal computer makers, are refraining from new chip purchases and using up inventories.
Analysts estimate that the chip division sustained quarterly losses of more than $3.03 billion as memory chip prices fell and its inventory values were slashed.
This would be the chip business’s first quarterly loss since the first quarter of 2009, a major divergence from what is normally a cash cow that generates about half of Samsung’s profits in better years.
Despite the disappointing results, shares in Samsung rose 3% in early trading, while shares of rival SK Hynix surged 5% as investors welcomed plans to cut production to help preserve pricing power.
Samsung is set to release detailed earnings, including divisional breakdowns, later this month.
