Samsung Electronics, the world’s largest memory chip maker, announced that it believes the worst is over for the global memory chip market. However, the company revealed plans to continue production cuts due to a demand recovery that remains primarily limited to high-end chips used in artificial intelligence applications.
The global semiconductor industry experienced an unprecedented downturn, which led Samsung to incur a staggering 8.9 trillion won ($7 billion) operating loss from its chip business in the first six months of this year. While the loss is expected to almost halve to 2.3 trillion won in the current quarter, it is likely that the business will remain in the red.
The ongoing global economic slowdown, coupled with high interest rates, has dampened demand for many consumer goods, despite the initial pandemic-driven boom. As a result, production cuts across the semiconductor industry are set to continue into the second half, with demand expected to gradually recover as clients reduce their chip inventories.
Jaejune Kim, executive vice president of Samsung’s memory business, announced on an earnings call that the company would extend production cuts and adjust output for specific products, including NAND flash chips used for data storage. The exact extent of Samsung’s output cuts was not disclosed, but it was noted that the company’s chip stocks were rapidly decreasing after reaching their peak in May.
SK Hynix, a major competitor, also announced plans to cut NAND output by an additional 5 percent to 10 percent. Analysts suggest that SK Hynix may benefit more from these concerted efforts due to its significant exposure to NAND chips, Reuters news report said on Thursday.
In the April-June quarter, Samsung’s chip division reported an operating loss of 4.36 trillion won, compared to a 9.98 trillion won profit in the same period the previous year. Though losses slightly reduced from the first quarter due to strong demand for AI-driven DRAM chips, Samsung is facing fierce competition from SK Hynix, which leads in high-end DRAM chips used in AI applications.
Analysts pointed out that Samsung’s delay in anticipating the rapid growth of the AI-driven chip market caused it to fall behind SK Hynix in terms of speed and yield. Nevertheless, Samsung aims to release its own HBM3 chips later this year to catch up with the market demand.
The bright spot for Samsung remains in the AI sector, which has seen significant investment following the successful launch of ChatGPT, a chatbot developed by OpenAI, last year. However, a broader chip demand recovery is not expected until the next year.
In June quarter, Samsung reported a 95 percent plunge in operating profit to 669 billion won, making it the second-lowest quarterly profit in 14 years. Meanwhile, the company’s mobile business experienced a 16 percent rise in operating profit, driven by sales growth of premium products.
Samsung unveiled its latest foldable smartphones recently, aiming to challenge Apple’s dominance in the high-end market while keeping prices relatively stable for the third year in a row.