Samsung Memory Chips: Cuts & Updates

Samsung Electronics reported on Thursday that the global memory chip market has seen the worst times pass, but they are still extending production cuts. This reflects an unprecedented downturn in the semiconductor industry, leading to a record operating loss of 8.9 trillion Korean won (around 7 billion USD) in the first half of this year for the South Korean company's major chip business.

According to Refinitiv's 22 analysts, although the operating loss nearly halved to 2.3 trillion Korean won in the second quarter, this business segment might still face losses in the current quarter.

The global economy slowdown and high-interest rates have dampened demand for most consumer goods after the pandemic-driven boom.

Samsung, the world's largest memory chip manufacturer, stated, "The production cuts for the entire industry could continue in the second half of the year, as customers continue destocking, and demand is expected to gradually recover." The company's second-quarter financial report, released on Thursday, showed a decline of 85% in net profit to 1.55 trillion Korean won for the quarter ending in June.

During the earnings conference call, Jaejune Kim, Executive Vice President of Samsung's memory business, mentioned plans to expand the scope of production cuts and implement additional adjustments to output, including NAND flash memory chips used for storing digital data.

Although he didn't provide specific details about the production cuts, he noted that the company's chip inventory has been rapidly decreasing since reaching its peak in May.

Samsung's stock price increased by 2% due to the statement, alleviating concerns about chip oversupply. Another South Korean memory chip manufacturer, SK Hynix, saw its stock price rise by 9%, reaching the highest level since March 2022.

On Wednesday, SK Hynix announced further reductions in NAND production by 5% to 10% as the company heavily deals with these chips, leading the market to believe that it will benefit more from the production cut efforts.

Lee Min-hee, a researcher at BNK Investment & Securities, commented, "The primary reason for SK Hynix's nearly 2 trillion Korean won loss in a single quarter is the decline in NAND chip prices, which has shrunk profit margins. Therefore, the new supply reduction plan may stabilize NAND prices, which is excellent news for SK Hynix."