[Concall] Samsung Proud of Cost Competitiveness... "No Memory Production Cuts" (Comprehensive)

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[Asia Economy Reporter Kim Pyeonghwa] Samsung Electronics has once again confirmed its stance to continue its semiconductor business without production cuts despite the memory market downturn. The company also announced plans to maintain appropriate levels of infrastructure investment to respond to medium- to long-term demand. Additionally, it forecasted that automotive memory semiconductors could grow alongside mobile and server as the three major application areas in the future.

Samsung Electronics detailed these plans during a conference call held after announcing its Q3 earnings on the 27th. During the call, as Samsung’s Q3 operating profit fell 31.4% year-on-year to 10.852 trillion KRW and semiconductor operating profit dropped 49%, reflecting the impact of the memory market slump, numerous related questions were raised.

"Appropriate inventory levels differ from the past"

Samsung Electronics stated that its total company-wide inventory for Q3 this year was approximately 57.3 trillion KRW, an increase of 5.2 trillion KRW from the previous quarter. It explained that this inventory increase mainly occurred in the memory business. This is due to the recent chain reaction of declining front-end demand, rising inventory, and price drops amid the company’s focus on the memory sector.

Samsung Electronics expressed that despite the ongoing market downturn centered on memory, there are no plans for artificial production cuts or investment adjustments. Since the appropriate inventory level has increased compared to the past and market outlooks are gradually improving, the company intends not to forcibly change its existing plans.

Han Jinman, Vice President of Samsung Electronics’ Memory Business Division, said, "In DRAM supply, factors such as equipment and facility lead times, increased process transition difficulty, and the larger chip size of DDR5 have introduced many constraints on production growth starting next year, so the appropriate inventory standards to smoothly respond to market demand have become higher than before."

He added, "Customers are making significant inventory adjustments, so demand is weak, but next year, data center expansions will increase, and DDR5 adoption for new CPUs (Central Processing Units) is also expected to rise. While market demand is currently subdued, from a medium- to long-term perspective, we believe we need to respond to demand."

Earlier this month, Vice President Han also stated at the 'Samsung Tech Day 2022' held in California, USA, that there would be no artificial production cuts.

Samsung Electronics also plans to proceed with capital expenditures (CAPEX) as originally planned under this policy. The company announced it will execute an annual CAPEX of 54 trillion KRW this year, with 47.7 trillion KRW allocated to the semiconductor sector. Vice President Han said, "Considering that next year’s CAPEX does not directly translate into next year’s bit production, we intend to proceed with infrastructure investments for medium- to long-term demand response as planned."

Samsung Memory’s Cost Competitiveness as a Weapon

Samsung Electronics’ plan contrasts with the global memory industry trend. US memory semiconductor company Micron and Japanese NAND flash company Kioxia recently announced plans to reduce investments and cut production in response to the memory market downturn. SK Hynix also stated in its Q3 earnings announcement yesterday that it would reduce next year’s investment by more than 50% compared to this year and cut production mainly for low-profit products.

Unlike its competitors, Samsung Electronics believes it has the resilience to withstand the market downturn due to its advantageous cost structure in memory businesses such as DRAM and NAND. Although the NAND market recovery is expected to be weaker than DRAM next year, Samsung explained that it aims to proactively create demand by leveraging its high NAND cost competitiveness and price elasticity.

Samsung Electronics also forecasted that automotive semiconductors could significantly increase their share in the memory business in the future. After 2030, mobility could grow alongside servers and mobile as the three major application areas. Samsung stated it will actively contribute to expanding the automotive memory market by preemptively preparing high-performance, high-spec product lines.

In contrast to memory, the foundry (semiconductor contract manufacturing) business, which is less affected by economic fluctuations, is expected to see market recovery in the second half of next year, leading to business expansion. It is anticipated that inventory backlogs will be cleared in the second half, and steady demand from applications such as high-performance computing (HPC) will improve the situation.

This content was produced with the assistance of AI translation services.