Samsung Electronics' Production Cuts More Talked About Than Earnings... Will It Affect Semiconductor Prices?

Samsung Electronics officially confirmed production cuts along with an 'earnings shock' announcement showing a 96% drop in operating profit for the first quarter of this year, raising expectations that the decline in semiconductor prices will ease going forward. As demand for memory semiconductors remains weak, the industry is focusing more on the additional production cut decisions rather than Samsung Electronics' earnings.

[Image source=Yonhap News]

On the 7th, Samsung Electronics announced its preliminary first-quarter results and for the first time officially acknowledged production cuts, stating that "memory production is being scaled down to a meaningful level." Regarding the production cuts, Samsung Electronics stated, "Memory production is being scaled down to a meaningful level." Industry analysts believe that since the semiconductor market conditions have worsened compared to the outlook announced in January when the fourth-quarter results were disclosed, it would have been difficult for Samsung Electronics to maintain its previous stance.

Kim Rok-ho, an analyst at Hana Securities, said, "From Samsung Electronics' perspective, semiconductor demand was much weaker than expected, and concerns over annual losses and cash flow tightening likely led to the decision to cut production," adding, "If Samsung Electronics had not cut production, memory semiconductor prices would have continued to decline, but depending on the scale of the production cuts, the rate of price decline in the second and third quarters will vary."

Wi Min-bok and Park Kang-ho, analysts at Daishin Securities, said, "We expect a 15-20% reduction in wafer input compared to the end of last year," adding, "However, based on its high market share and cost advantages over competitors, Samsung Electronics' production cuts may be limited compared to its rivals." Kim Un-ho, an analyst at IBK Investment & Securities, commented on Samsung Electronics' production cuts, saying, "There is hope that the oversupply situation could be resolved faster than previously expected," and added, "While a rebound in DRAM prices is unlikely, the rate of decline may slow from the second quarter, and supply adjustments in the second half of the year are expected to help balance supply and demand."

Meanwhile, Samsung Electronics' consolidated operating profit (preliminary) for the first quarter of this year was 600 billion KRW, down 95.75% compared to the same period last year. This is the first time in 14 years since the first quarter of 2009 (590 billion KRW) that quarterly operating profit has fallen below the 1 trillion KRW mark. Sales were 63 trillion KRW, down 19% from the same period last year. The slowdown in semiconductor demand dealt a direct blow to earnings. Due to the worsening semiconductor market conditions, the DS division, responsible for semiconductors, is estimated to have posted a loss of around 4 trillion KRW.

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