Samsung, the world’s leading chip manufacturer, is persisting with its chip production reductions in Q3 2023 as part of its overarching strategy to address chip-related losses. This approach is in response to the persisting challenge of chip oversupply in the global market. Samsung commenced its production cuts earlier this year, aligning itself with similar measures adopted by industry counterparts such as SK Hynix Inc. and Micron Technology.
Strategic Production Reduction
Analysts from KB Securities, notably Kim Dong-won, project that Samsung’s Device Solutions (DS) division, responsible for overseeing its chip business, will report losses of approximately 4 trillion won, equivalent to around $2.96 billion, in Q3. While these projected losses remain substantial, they represent an improvement when contrasted with the 4.35 trillion won losses recorded in Q2.
The primary impetus behind the reduction in losses is the heightened chip production cuts that Samsung has progressively implemented since the second half of the year. Presently, production of DRAM (Dynamic Random-Access Memory) chips has been curtailed by 30%, while NAND Flash chip production has been scaled back by 40%. These adjustments signify a considerable escalation from the 20% and 30% cuts, respectively, that were implemented in Q1.
Challenges in the Chip Market
Earlier this year, Samsung’s DS division encountered a substantial operating loss of 4.6 trillion won in Q1. This marked a momentous occurrence as it represented the division’s first financial loss in 14 years. The loss was predominantly attributed to the presence of elevated chip inventories coinciding with subdued global demand.
Anticipated Impacts and Future Prospects
While the augmented chip production cuts have contributed to loss reduction, they are expected to exert a notable influence in other dimensions. Particularly, the 50% decrease in NAND Flash chip production is poised to prompt potential price hikes for Samsung’s primary chip products.
Despite this optimistic outlook, some analysts exercise caution regarding Samsung’s chip performance in the third quarter, primarily due to the amplified costs associated with depreciation.
To sum up, Samsung’s strategic endeavors to curtail chip production are anticipated to narrow the chip deficit in Q3, potentially fostering enhancements in chip prices and surges in demand. Nevertheless, the overall impact may hinge on production expenses and the ever-evolving dynamics of the chip market.
