Samsung revealed plans to significantly reduce memory chip output. This move comes as the company grapples with a concerning decline in operational profits. Estimates for Q1 2023 indicate a staggering 96% year-on-year decrease, marking Samsung's lowest profit performance in 14 years.
Operating profits plummeted from 14 trillion won to 600 billion won ($456 million) during this time frame. The main catalyst behind the shrinking margins is a dip in sales, attributed to a sluggish global economy and decreased spending on RAM and storage solutions by computer and server equipment manufacturers. The reduced demand for chips stems from the chip shortages experienced between 2020 and 2022.
Samsung announced last week that it would adjust its production capacity in light of the diminished demand. The company plans to notably scale back memory chip production, especially for those with guaranteed supply. South Korean industry analysts anticipate that Samsung's chip division will face substantial losses totaling billions of dollars in Q1 2023.
Samsung's decision to reduce production has sparked concerns about the company's strength in the face of intense competition from neighboring rivals and other manufacturers in the Southeast Asian region. The cutbacks may tarnish Samsung's reputation as a dominant force in the industry, particularly following recent announcements of significant expansions and investments in semiconductor manufacturing, backed by the South Korean government.
Other South Korea-based memory chip makers, such as SK Hynix and Micron, have experienced similar financial setbacks in recent quarters. Samsung is set to release detailed financial results later this month.