Samsung announces H2 recovery after chip loss of $3.4 billion in Q1

Samsung Electronics Co., Ltd. (005930.KS) reported a gradual recovery in chips in the second half of the year after its semiconductor business posted a record loss of $3.4 billion on Thursday, driven by a more than double chip surplus. Demand for technical devices.

A global slump in semiconductor purchases amid an economic slowdown and tightening of corporate belts sent chip prices lower in the first quarter, cutting production across the sector.

Samsung said that by the second half of the year, customers will have run out of stock and will gradually start buying chips again.

“We expect inventory levels to start declining in the second quarter,” said Jaejune Kim, executive vice president of the memory business at Samsung.

For the current quarter, Samsung said it expects a limited recovery in memory chips as major data center companies invest more conservatively in servers.

The world’s largest memory chip maker said operating profit fell to 640 billion won ($478.6 million) for the January-March quarter, down 95% from a year earlier and its lowest profit in any quarter in 14 years.

The South Korean tech giant’s chip division — usually its most reliable cash cow — reported a loss of 4.58 trillion won ($3.41 billion), compared to a profit of 8.45 trillion won a year earlier.

Shoppers around the world have reduced their purchases due to rising inflation. As a result, stocks of smartphone, PC and server companies have plummeted, causing chip prices to drop about 70% over the past nine months.

Samsung announced a rare cut in chip production earlier this month, joining smaller rivals like SK Hynix Inc (000660.KS).

While this may help with a slight price recovery, analysts said Samsung’s earnings in the current quarter could be similar to the first quarter without an underlying pickup in demand for devices using the chips.

“In addition to production cuts in the current quarter, Samsung said its production will be flexible in the second half, which means it may participate in more inventory management cuts,” said Lee Min-hee, an analyst at BNK Investment & Securities.

Buy chips again

Despite the record loss in chips, Samsung said first-quarter capital expenditures came in at 10.7 trillion won, the highest in the first quarter of any year.

Of that, 9.8 trillion won was spent on chips as Samsung set up production at its plants in Taylor, Texas, and Pyeongtaek, South Korea.

Samsung said it plans to keep memory chip investment for this year at a similar level to 2022 to secure factory space.

It said its positive long-term outlook remained unchanged because the spread of electric cars, artificial intelligence and high-performance computing would drive 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.

“Samsung is focused on profit rather than shipments” as it meets more flexible demand for premium smartphones rather than volume, said Gene Park, senior analyst at Counterpoint.

In the second half, Samsung expected the smartphone market to increase in both shipments and revenue.

Shares in Samsung rose 0.3% after the earnings call, reversing an earlier decline. The stock is up 16% year-to-date as investors anticipate a memory chip rebound in the second half.

($1 = 1,341.4600 won)

(Reporting by Joyce Lee and Heekung Yang). Editing by Jacqueline Wong

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