Samsung to keep cutting chip output to boost bottom line

The Korea Times

The Korea Times

Business

Sat, September 23, 2023 | 04:27

Samsung to keep cutting chip output to boost bottom line

Posted : 2023-07-27 15:58

Updated : 2023-07-28 15:36

Samsung Electronics' semiconductor plant in Pyeongtaek, Gyeonggi Province / Courtesy of Samsung Electronics

Tech giant's semiconductor business expected to turn around in Q4

By Park Jae-hyuk

Samsung Electronics will continue to reduce semiconductor output during the latter half of this year, to accelerate an earnings recovery by reducing inventory, the company said Thursday.

"We will make an additional adjustment to the production of both DRAM and NAND flash," Samsung Electronics Executive Vice President Kim Jae-joon, who is in charge of the memory business, said during a conference call on second-quarter earnings. "We will especially carry out a large-scale reduction in NAND production."

His remarks came after the tech giant suffered a 4.36 trillion won ($3.4 billion) operating loss from its semiconductor business during the second quarter, narrowing slightly from a 4.58 trillion won loss in the first quarter, thanks to a decreasing inventory level since May.

Total operating profit during the second quarter, however, edged up 0.03 percent from the previous three months to 670 billion won as losses from the semiconductor business were offset by profits from home appliance and mobile device sales.

The company mainly attributed the earnings recovery at its semiconductor business to its decision to join the global trend of cutting semiconductor output.

In April, Samsung Electronics decided to reduce the manufacturing volume of memory chips to a "meaningful level." Its domestic rival, SK hynix, also said Wednesday that it will carry out an additional 5 to 10 percent reduction in NAND flash output during the second half of this year.

Despite the planned production cut, Samsung emphasized it will increase investments in infrastructure, R&D and packaging technology, to bolster competitiveness over the mid- to long-term period.

Samsung Electronics spent a record 7.2 trillion won on R&D during the second quarter. Total capital expenditures also reached 14.5 trillion won, including 13.5 trillion won for semiconductors.

"To strengthen our leadership in high-performance servers and mobile high-end segments, the memory business will rapidly increase the share of cutting-edge products such as DDR5, LPDDR5x and HBM," Samsung said in a press release.

SK hynix is also set to increase investments next year to remain competitive in the market for HBM, which is in high demand among generative artificial intelligence developers. According to Taiwanese market researcher TrendForce, SK hynix's share of the global HBM market was estimated at 50 percent last year, while Samsung Electronics accounted for 40 percent and Micron Technology 10 percent.

Samsung, however, claimed it has led the HBM market, unveiling plans to double the production capacity for the high-end product in 2024, compared to this year.

The company maintained a cautious stance regarding annual earnings guidance figures, considering lingering uncertainties about a recovery in global chip demand in the face of unstable macroeconomic projections.

KB Securities analyst Kim Dong-won expects Samsung to start seeing profits again from its semiconductor business beginning in the fourth quarter.

"The size of the production of highly value-added products, such as HBM3 and DDR5, will be the key to improving the profitability of the memory chip market during the second half," the analyst said.

pjh@koreatimes.co.kr