In a surprising turn of events, Samsung’s Device Solutions (DS) division, responsible for the lucrative chip production business, experienced a rare loss in the first quarter of this year. This marked the first time the division operated in the red since 2009. Unfortunately, the outlook for the rest of the year doesn’t seem promising either, prompting Samsung to make substantial cuts to production targets.
Q1 and Q2 Loss for Samsung
The grim financial results began with an operating loss of KRW 4.6 trillion in the first quarter, a figure that slightly improved to KRW 4.36 trillion in the subsequent quarter. However, as the industry grapples with low demand for chips, the forecast for Q3 isn’t any better, with anticipated losses amounting to around KRW 4.0 trillion ($2.95 billion). Analysts like Kim Dong-won from KB Securities and Kim Kwang-jin from Hanwha Investment & Securities are projecting similar losses, while Greg Roh from Hyundai Motor Securities predicts a slightly smaller loss of KRW 3.6-3.7 trillion for Q3.
Production Cutbacks due to loss for Samsung
In response to the demand downturn, Samsung made significant production cutbacks in the first half of the year. They reduced the production of DRAM chips by 20% and NAND flash chips by 30%. Looking ahead to the second half of the year, these cutbacks will deepen to 30% for DRAM chips and a substantial 40% for NAND flash chips. These measures reflect the company’s efforts to balance supply with the existing oversupply of chips in the market.
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New Production Line and the Pyeongtaek Campus
Adding to the challenges, Samsung DS is in the process of setting up a new chip production line in Pyeongtaek. Although this development promises long-term growth and capacity expansion, the initial setup and associated costs are contributing to the current financial losses alongside the demand slump.
Memory Business: A Significant Component
The memory business, often described as Samsung’s “cash cow,” has historically been a significant revenue generator. In Q2 of this year, it accounted for KRW 14.73 trillion of the total KRW 60.01 trillion in revenues. However, a comparison with last year’s Q2 numbers reveals a decline, with the division contributing KRW 28.5 trillion to the total revenue of KRW 77.2 trillion and posting an operating profit of KRW 9.98 trillion.
Future Prospects
The challenges faced by Samsung’s DS division underscore the broader issue of oversupply in the chip market, a problem not limited to Samsung alone. Rivals such as SK Hynix and Micron Technology have already scaled down their production in response to the prevailing market conditions. It is evident that restoring balance between supply and demand will take time, and the industry must navigate this period with strategic adjustments and careful planning.
In conclusion, the current hurdles faced by Samsung’s Device Solutions division shed light on the intricacies of the semiconductor industry and the need for adaptability to market dynamics. As they strive to navigate these challenges, Samsung remains committed to innovation and growth, exemplified by their ongoing efforts to establish new production capabilities while optimizing existing operations. Time will tell how these measures influence the company’s trajectory in this crucial sector.
