Samsung Electronics on Friday revealed it would cut chip production as it is expecting 19 percent drop in revenue to 63 trillion won for the first quarter of 2023 from the same period a year earlier.
Samsung Electronics did not disclose the size of the planned cut. Samsung’s plans to cut production shows that it will cut down on its capital expenditure for 2023.
Rivals Micron Technology and SK Hynix have slashed investment plans as a result, expecting the chip downturn to last at least until the second half of 2023. Chip buyers also remain conservative about making new investments as interest rates soar.
In February, Samsung Electronics said it planned to borrow 20 trillion won from unit Samsung Display to use as operational funds until August 2025.
Shares of Samsung Electronics, the world’s largest memory chip and TV maker, rose 3 percent in early trading, while rival SK Hynix’s shares surged 5 percent as investors welcomed plans to cut production to help preserve pricing power.
Samsung estimated its operating profit fell 96 percent to 600 billion won ($455.5 million) in January-March 2023, from 14.12 trillion won a year earlier, in a short preliminary earnings statement. It was the lowest profit for any quarter in 14 years.
“Memory demand dropped sharply… due to the macroeconomic situation and slowing customer purchasing sentiment, as many customers continue to adjust their inventories for financial purposes,” Samsung Electronics said in a statement.
“We are lowering the production of memory chips by a meaningful level, especially that of products with supply secured,” Samsung Electronics said.
The production cut signal is unusually strong for Samsung, which previously said it would make small adjustments like pauses for refurbishing production lines but not a full-blown cut.
Samsung Electronics is due to release detailed earnings, including divisional breakdowns, later this month.
Prices of DRAM memory chips, widely used in smartphones, PCs and servers plunged about 20 percent during the quarter, while prices for NAND flash chips used in data storage fell about 10 percent to 15 percent, according to TrendForce data.
Clients including data centre operators, smartphone and personal computer makers are refraining from buying new chips and instead using up inventories, as consumer demand for tech devices remains sluggish due to rising inflation.