Slump In Memory Chip Sales Hurts Samsung Electronics

Samsung Electronics said on Friday it expected first-quarter operating profits to plunge more than 95 percent on-year to a 14-year low, as memory chip sales were hammered by a global downturn.

Weak demand and steep profit fall also led the tech titan to announce it will scale back memory chip production in a "meaningful" manner.

The firm said in a regulatory filing that January-March operating profits were expected to drop 95.7 percent to 600 billion won (HK$3.58 billion), their lowest level since the first quarter of 2009.

The anticipated drop in profits was because of "continuing weak demand for IT products that have aggravated the performances of all sectors", Samsung said in the statement.

"We are cutting memory chips production to a meaningful level," it added, saying the company had "stockpiled enough supplies of certain memory chips products to meet changing market demand down the road".

But it said it will continue investments in infrastructure as well as research and development in anticipation that "solid demand (for memory chips) is expected over the long run".

The decision to cut chip output sent Samsung's shares up more than four percent on Friday on hopes prices will bounce back down the line.

Rival SK Hynix jumped more than six percent.

Samsung did flat in the statement "solid sales of the new Galaxy S23 series" from the smartphone division, said analyst Han Dong-hee of SK Securities in a report.

"But with the memory division swinging to the loss, it is inevitable for the operating profit to be at the breakeven point level."

Samsung is the world's largest smartphone maker and the flagship subsidiary of Samsung Group, by far the largest of the family controlled conglomerates that dominate business in Asia's fourth-largest economy.

Korean chipmakers -- led by Samsung -- have enjoyed record profits in recent years as prices for their products soared, but the global economic slowdown has dealt a blow to memory sales.

The recent drop in profits has not deterred Samsung from making bold investments -- in March, it unveiled plans to contribute US$227 billion over the next two decades to building the world's largest chip centre in Yongin, south of Seoul.

The plan is part of the South Korean government's drive to invest heavily in six key technologies, including chips, displays and batteries -- all areas where the country's tech giants are already well-established.

Samsung is expected to release its final earnings report at the end of this month. (AFP)