Samsung Slashes Production Targets Amid Chip Business Losses
Samsung has faced a surprising setback in its chip production business. For the first time since 2009, the company’s Device Solutions (DS) division, responsible for chip manufacturing, reported losses in the first quarter of this year. Unfortunately, the challenges appear to persist, leading Samsung to take proactive measures by significantly reducing its production targets.
Samsung’s First Quarter Woes
The troubles began with an operating loss of KRW 4.6 trillion in the first quarter, and though the loss slightly improved to KRW 4.36 trillion in the second quarter, the outlook for the third quarter remains grim. Analysts like Kim Dong-won from KB Securities predict a further loss of approximately KRW 4.0 trillion ($2.95 billion).
While some experts anticipate the losses for Q3 to be around KRW 3.7 trillion (Kim Kwang-jin, Hanwha Investment & Securities), and KRW 3.6 trillion (Greg Roh, Hyundai Motor Securities), the overall sentiment indicates a challenging period for Samsung’s DS division.
Production Cutbacks
In response to the ongoing chip market challenges, Samsung made significant production cutbacks in the first half of the year. DRAM chip production was reduced by 20%, while NAND flash chip production saw a 30% reduction. The situation is expected to worsen in the second half of the year, with reductions of 30% for DRAM chips and 40% for NAND flash chips, according to Kim Dong-won.
Oversupply Challenges
One of the key issues driving these losses is the persistently low demand for chips. Samsung’s competitors, SK Hynix and Micron Technology, also reduced their production last year. The market continues to face an oversupply of chips, which implies that it may take some time for the balance between supply and demand to be restored.
The “Cash Cow” Impact
Samsung’s memory business, managed by the DS division, has historically been referred to as the company’s “cash cow.” In Q2 of this year, it contributed KRW 14.73 trillion out of the total KRW 60.01 trillion in revenues. In comparison, during last year’s Q2, this division generated KRW 28.5 trillion out of the total KRW 77.2 trillion in revenue, with an operating profit of KRW 9.98 trillion.
Adding to the current losses is Samsung Device Solutions’ effort to establish a new production line at the Pyeongtaek Campus. This endeavor, coupled with the reduced demand, further compounds the challenges faced by the DS division.
Pokdepinion: Samsung’s unexpected losses in its chip production business have prompted the company to make significant production cutbacks. While the road ahead may remain challenging, the tech giant is actively addressing these issues and adjusting its strategy to navigate through the turbulent chip market. As the industry evolves, Samsung will continue to play a pivotal role in shaping its future.
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