Samsung Electronics Co. Ltd. early today released preliminary financial results for the first quarter, disclosing that its operating profit likely dropped by 96% to a 14-year low.

It’s believed that the drop is partly the result of losses in the company’s semiconductor unit. To improve its bottom line, Samsung intends to scale back production of memory chips.

The electronics giant estimates that its operating profit in the quarter ended March 31 reached 600 billion won, the equivalent of $455.5 million. That’s a small fraction of the 14.12 trillion won, or $10.7 billion, it reported the same time a year ago. The sum represents Samsung’s lowest operating profit since 2009.

According to Reuters, analysts believe that the profit slump is partly the result of weak performance by the company’s semiconductor unit. Samsung is the world’s largest maker of DRAM and flash storage chips. Moreover, it operates a foundry business that makes processors for other companies.

Analysts reportedly estimate that Samsung’s chip business lost 2.1 trillion won, or $1.6 billion, in the first quarter. The loss can likely be attributed in large part to slowing demand for memory chips.

Memory chip orders have declined significantly amid a slowdown in personal computer and handset shipments. As a result, DRAM and flash prices are down year-over-year. In late January, Bloomberg reported that Samsung and its rivals were making new chips at a loss.

The cooling demand for DRAM and flash modules is also reflected in the industry’s inventory levels. That’s a metric used to track how much DRAM and flash chips there are on the market. In January, inventory levels reportedly more than tripled to between three and four months’ worth of supply.

To address the current market conditions, Samsung will scale back new chip production. “We are lowering the production of memory chips by a meaningful level, especially that of products with supply secured,” the company said today. Products with a secured supply are chips that have particularly high inventory levels.

Samsung’s top rivals in the memory market, Micron Technology Inc., and SK hynix Inc., are also making adjustments in response to the slowed demand. The companies have both announced plans to cut back capital expenditures this year. Chipmakers’ capital expenditures comprise items such as manufacturing gear. 

In January, Samsung signaled that it won’t scale back chip-related investments this year. The company hasn’t indicated that it intends to change its plans.

Earlier, the company reportedly indicated that its capital expenditures this year will reach a similar level as in 2022, when it invested 53.1 trillion won or about $40 billion. The bulk of that sum, 47.9 trillion won, went to Samsung’s semiconductor unit. The company launched a new three-nanometer chip production process and upgrades its memory manufacturing operations.

Though it didn’t address its 2023 spending plan today, the company reportedly reaffirmed it was “still making” long-term investments in chip technology. Samsung is investing in both semiconductor production and research. A few months ago, the company stated that it plans to spend the equivalent of $356 billion over the next five years in key parts of its business, including its chip unit.

The slowdown in Samsung’s chip business is not unexpected. In January, the company projected that chip demand would fall during the first half of the year. It expects the market to rebound during the latter half of 2022 thanks partly to increased demand from the auto sector and high-performance computing segment. 

Photo: Samsung