After projecting a 96% decline in its quarterly operating profit, Samsung Electronics will reduce the output of memory chips.

The world’s largest manufacturer of chips reported a steep decline in sales due to weak demand after Covid and a slowing global economy.

According to Samsung, early data indicates that operating profits decreased from 14 trillion won in January through March to 600 billion won (£366 million).

Despite the decision to delay chip production, the company’s shares increased by more than 4%.

The South Korean tech titan claimed, “We are meaningfully reducing the production of memory chips, especially that of products with supply secured.”

As people purchased new electronics for use at home during Covid-induced lockdowns, the demand for memory chips increased.

The chip crisis of recent years is finally over, but many semiconductor producers are still having trouble striking a balance between their inventory and current demand.

“Suddenly, as the general economy slowed, the demand for these finished goods decreased. As a result, the producers of these finished goods stopped ordering chips and concentrated on selling through their existing inventory, according to analyst Peter Hanbury of management consulting firm Bain & Company.

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For semiconductor manufacturers farther down the supply chain, where demand was at an all-time high during the chip shortage, “this had a strong ‘bullwhip’ effect,” the author continued.

Samsung, the largest producer of smartphones, tablets, and televisions worldwide, had fought the trend to reduce memory chip output in comparison to its rivals.

Analysts claim it is unusual for the corporation to declare a reduction in production. It revealed plans to spend 300 trillion won over 20 years to build a massive semiconductor hub in South Korea last month.

According to Dylan Patel, principal analyst at SemiAnalysis, “Samsung faces a double whammy of DRAM and NAND [memory chips] losing money and needing to update the process technology their [factories] use due to falling behind over the last couple of years.”

Investors are hoping that Samsung’s statement is a harbinger of a semiconductor market rebound.

“We anticipate that this inventory’s ‘digestion’ phase will be finished within the next three to six months. The end markets will have used up their inventories by then and will have resumed a more typical buying pattern, according to Peter Hanbury.

Later this month, the corporation is expected to reveal specific financial information.


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