Samsung Takes Measures to Offset Chip Production Losses

Samsung Device Solutions (DS), responsible for the tech giant’s significant chip production operations, reported its first quarterly loss since 2009. The downturn this year has prompted Samsung to make major adjustments to its production quotas.

DS registered an operating loss of KRW 4.6 trillion in Q1. Though the losses were curtailed to KRW 4.36 trillion in Q2, the projection for Q3 hovers around a concerning KRW 4.0 trillion ($2.95PHP 173INR 250EUR 3CNY 21 billion), as anticipated by analyst Kim Dong-won from KB Securities. Contrasting predictions arise from other analysts: Kim Kwang-jin from Hanwha Investment & Securities expects a loss of KRW 3.7 trillion, while Greg Roh from Hyundai Motor Securities is slightly more optimistic, foreseeing a KRW 3.6 trillion deficit.

In response to the bleak financial performance, Samsung has scaled down its production targets. The company has already reduced the production of its DRAM chips by 20% and NAND flash chips by 30% in the year’s first half. As per Kim Dong-won, these cuts will further deepen during this second half, with reductions projected at 30% for DRAM and 40% for NAND chips.

At the heart of these challenges lies an industry-wide reduced demand for chips.

Competitors SK hynix and Micron Technology already experienced this slump, prompting production cutbacks last year. The market is grappling with an oversupply, and equilibrium between supply and demand appears distant.

Samsung’s DS division, historically a significant revenue generator for the company, has seen substantial drops.

In Q2, it accounted for KRW 14.73 trillion out of the total KRW 60.01 trillion revenues. Comparatively, last year’s Q2 saw the division contributing KRW 28.5 trillion of the total KRW 77.2 trillion revenue, coupled with a robust operating profit of KRW 9.98 trillion.

Further exacerbating the situation, Samsung DS is in the process of commissioning a new production line at its Pyeongtaek Campus. The combined weight of reduced demand and the financial implications of this new production setup seems to be taking a toll on the company’s profit margins.