Samsung Electronics, the world’s largest memory chipmaker, reported a record loss of $3.4 billion in its semiconductor business for the first quarter of 2023. The loss was driven by a chip glut caused by weak demand for tech devices amid an economic slowdown and corporate belt-tightening. The global downturn in semiconductor purchases triggered production cuts across the sector, leading to a plunge in chip prices by about 70% over the previous nine months. This caused shoppers around the world to cut back on purchases, leading to a run-down in inventories.
However, Samsung expects a gradual recovery for chips in the second half of the year, as customers are expected to run down inventory and start buying chips again. The company anticipates that inventory levels will start dropping in the second quarter. It expects a limited recovery for memory chips in the current quarter as major data center firms invest more conservatively in servers.
Although the rare chip production cut announced earlier this month could help chip prices recover slightly, analysts believe that Samsung’s profit in the current quarter may be similar to the first quarter without a fundamental recovery in demand for devices that use chips. In addition to production cuts in the current quarter, Samsung said its production would be flexible in the second half, which means it could engage in more cuts to manage inventory.
Despite the record loss in chips, Samsung’s positive long-term outlook remained unchanged as the proliferation of electric vehicles, artificial intelligence, and high-performance computing would fuel demand for chips. Samsung’s mobile business was a bright spot, reporting a profit of 3.94 trillion won in the first quarter, up from 3.82 trillion won a year earlier. The company is focusing on profit rather than shipments as it meets more resilient demand for premium smartphones rather than volume.
Samsung plans to keep this year’s memory chip investment at a similar level to 2022 to secure plant space. Its capital expenditures in the first quarter totaled 10.7 trillion won, the highest for the first quarter of any year, out of which 9.8 trillion won was spent on chips as Samsung sets up production in its Taylor, Texas, and Pyeongtaek, South Korea factories.
Samsung’s stock has risen about 16% year-to-date as investors anticipate a memory chip recovery in the second half. The company expects the smartphone market to increase in both shipments and revenue in the second half.