According to reports, due to low demand for technology products leading to losses in the semiconductor division, Samsung Electronics is about to usher in at least since the global financial crisis since the lowest single-quarter profit.
The South Korean chipmaker will disclose its preliminary results for the March quarter on Friday. Analysts on average expect the company’s operating profit for the quarter to plunge about 90% to 1.45 trillion won (currently about RMB 7.598 billion). That would be the lowest since 2009. Some analysts also expect the company’s profit for the quarter to fall below 1 trillion won, or even barely make a profit.
Although the semiconductor industry is highly cyclical, the industry still recorded a record cycle during the new crown epidemic. During the epidemic, demand surged as consumers rushed to buy new computers and cell phones, prompting chip companies such as Samsung to increase production capacity. But as the impact of the epidemic waned and sales declined, high inflation, rising interest rates and other global economic issues had a further negative impact on performance.
This has led to a supply-demand mismatch in the $160 billion (currently about RMB 1.1 trillion) chip industry, with high inventories and a direct impact of significantly lower DRAM and NAND prices. Samsung, the world’s largest manufacturer of new storage chips, the semiconductor division alone is likely to lose about $2.7 billion.
Lee Seung-woo, an analyst at investment bank Eugene Investment & Securities, said: “The biggest problem now is that chip inventories are too high. So companies need to reduce inventory by cutting production.”
According to market research firm TrendForce, DRAM prices, a type of memory chip used to process data in computers and cell phones, have fallen 20% in the first quarter of this year and are likely to fall a further 10 to 15% in the second quarter. prices of NAND memory chips have also fallen 15% and are likely to fall a further 5% to 10% in the second quarter.
Storage chip prices fell faster than market expectations in the first quarter due to weak demand.” Baik Gihyun, an analyst at Yuanta Securities, said, “The rate of decline in the current quarter will slow down. Since DRAM and NAND contract prices will soon reach cash production costs, there will not be much room for further dips.”
According to data released by South Korea’s trade ministry, the country’s chip exports fell 34.5% in March and by more than 40% in February. South Korea’s total exports to its largest trading partner, China, fell 33.4%.
As a competitor of Samsung Electronics, Micron Technology CEO Sanjay Mehrotra (Sanjay Mehrotra) said last week that he was optimistic about the recovery of the market this year because inventory levels have been reduced, while demand gradually recovered. However, the key to recovery still depends on whether large chip makers will reduce production. “If supply is further reduced, the recovery could accelerate.” He said.
Samsung has been reluctant to reduce production. Although Micron, SK Hynix and Armor Man have reduced investment spending and production, hoping to curb further price declines, Samsung, which is the industry leader, is still increasing spending.
Samsung is currently led by Lee Jae Yong. The company says its strategy has historically been to increase spending during down cycles in order to strengthen its competitive position. Such an approach could help it capture more market share and develop new technologies that could hit rivals such as Hynix and Micron when they can’t afford to invest in them.
Workers at Samsung’s Pyeongtaek plant are busy assembling the company’s fourth large chip production line, with plans to add two more lines by 2030. In addition to memory chips, Samsung is also trying to expand its semiconductor foundry business, an area currently dominated by TSMC. Samsung announced it will spend 300 trillion won ($229 billion) over the next 20 years to build a new large chip factory in Yongin.
Although rivals and investors called on Samsung to follow its rivals to reduce production, Samsung does not seem to be a strong will. In February, Lee Jae-Yong told Samsung executives that they should not be affected by industry challenges, but should continue to invest in the future.
