Samsung Electronics, the leading South Korean technology conglomerate, has reported a massive decline in operating profit for Q1 2023 compared to last year. The primary reason for this significant slump is the reduced demand for memory chips. While Samsung has not revealed the exact level of production cutback, industry experts anticipate a 25% decrease.
According to Minbok Wi, a Semiconductor Analyst from Daishin Securities, Samsung may reduce memory chip production by 20% to 25% in H1 2023, compared to H1 2022. On the other hand, KB Securities predicts that Samsung will cut NAND flash chip production by 15% and DRAM chip production by over 20%, starting from Q3 2023. Analyst Min Seong Hwang from Samsung Securities warns that the company may need to curtail production further if inventory levels fail to decrease.
Samsung has assured that it has enough memory chip inventory to fulfill mid to long-term demand and intends to decrease the production of outdated products. While Samsung has not identified which memory chips will face reduced production, The Korea Herald states that Samsung plans to limit the output of low-cost DRAM modules such as DDR3 and DDR4 because of their decreasing demand. Instead, Samsung will focus on advanced memory chips such as DDR5, which is rapidly gaining popularity.
Recent market trends have been unfavorable for Samsung, with the average contract price of an 8GB DDR4 RAM module decreasing by 19.9% last month, following an 18.1% decline in January. Although prices stabilized in February and March, they are falling again, despite Samsung’s announcement of production cuts. TrendForce predicts a further 15% to 20% price drop during Q2 2023 as suppliers tackle high inventory levels.
While the immediate future for Samsung and the chip industry appears grim, some analysts remain positive, suggesting that there could be a reversal in 2024. As the market shifts and advanced memory chips like DDR5 gain momentum, Samsung’s focus on next-generation technologies could position it favorably for recovery in the coming years.