Samsung Electronics has announced its decision to extend production cuts in response to a challenging global semiconductor market. The company expressed a cautious outlook for the industry, noting that the demand recovery is primarily confined to high-end chips utilised in artificial intelligence applications.
The memory chip industry has been experiencing an unprecedented downturn, which had a profound impact on Samsung’s financials. During the first six months of this year, the South Korean tech giant incurred a record 8.9 trillion won (USD 7 billion) operating loss from its chip business, a significant contrast from the 9.98 trillion won profit reported in the same period the previous year.
Jaejune Kim, the executive vice president of Samsung’s memory business, revealed that production cuts would continue into the second half of the year. He also mentioned that specific products, including NAND flash memory chips used for data storage, would face additional output adjustments.
The announcement comes amidst concerns about chip oversupply in the market, leading to a positive response from investors. Following the news, Samsung’s shares rose by 1.7 per cent, while its smaller rival, SK Hynix, saw a substantial increase of 9 per cent in its shares.
Although the memory chip division’s losses slightly shrank from the previous quarter, the April-June quarter still reported a 4.36 trillion won loss due to the ongoing industry challenges. However, there was a silver lining, as strong demand for memory chips from AI applications led to higher-than-expected shipments of DRAM chips used in systems while in operation.
Samsung’s chip contract manufacturing business, catering to clients like Qualcomm, faced a significant decline in profits. The uncertainty in short-term demand highlighted the weakness in the smartphone and consumer gadget markets.
On a positive note, Samsung’s mobile business reported a profit of 3.04 trillion won in the June quarter, an increase from the previous year’s 2.62 trillion won. The company expressed hope for the overall smartphone market’s return to year-on-year growth in the second half, particularly in the premium segment.
Looking forward, Samsung remains committed to competing in the high-end smartphone market. The recent unveiling of its latest foldable smartphones, priced similarly to previous iterations, showcases the company’s determination to challenge Apple’s dominance in the premium market.
Meanwhile, Taiwan’s TSMC, the world’s largest contract chipmaker, also faces challenges in the current climate, having lowered its annual sales guidance due to weak global demand and cost-related concerns.