According to Yonhap News, South Korea’s leading news agency, Samsung is poised to reduce its chip shortfall in the third quarter, largely attributed to its ongoing efforts to cut chip production.
Earlier this year, Samsung, the world’s leading memory chip manufacturer, initiated production cuts, following the lead of competitors like SK hynix and Micron Technology, which began reducing production late last year to address the ongoing supply glut.
Kim Dong-won, an analyst at KB Securities, expects Samsung’s Device Solutions division, responsible for chip operations, to incur losses of approximately 4 trillion won (approximately $3.96 billion) in the third quarter, down from 4.35 trillion won (approximately $3.96 billion) in the second quarter.
Samsung has significantly increased its production cuts since the first half, reducing production of dynamic random-access memory (DRAM) chips by 30% and NAND Flash memory by 40%, up from 20% and 30%, respectively, in the first half.
Samsung’s Device Solutions division reported an operational loss of 4.6 trillion won in the first quarter, marking its first financial loss in 14 years due to a substantial increase in chip inventory amidst declining global demand. The division previously recorded losses in the first quarter of 2009.
Analyst Choi Bo-young of Kyobo Securities explained that while production cuts and a more balanced supply-demand dynamic have begun to boost memory chip prices, high fixed costs for idle manufacturing facilities have also impacted profits.
Greg Roh, the head of research at Hyundai Motor Securities, noted that Samsung’s production cuts had a “marginal” impact so far. However, the rising costs of consumption stemming from the ramp-up of the new chip production line at the Pyeongtaek Campus have eroded profits. Roh estimated a similar loss of around 3.6 trillion won for the Device Solutions division.
TrendForce, earlier this month, reported that Samsung has taken a “decisive step” by reducing NAND Flash production by 50% to address the ongoing demand slump, which is likely to help stabilize chip prices and boost demand in the coming months. It also predicted that Samsung’s stringent production cuts might have a multiplier effect, potentially leading to price increases in its core products.
