Seoul: In an apparent effort to reduce inventory, Samsung Electronics announced Friday that it is reducing the production of its computer memory chips. The company also predicted another quarter of subpar profit.
In a regulatory filing, the South Korean tech giant stated that it has been reducing the production of some memory products by unspecified "meaningful levels" in order to improve its manufacturing processes. It also stated that it has enough supplies of those chips to meet demand fluctuations.
For the three months ending in March, the company forecast an operating profit of 600 billion won ($455 million), a 96% decrease from the same time last year. Sales for the quarter are expected to have decreased by 19% to 63 trillion won ($47.7 billion).
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The demand for Samsung's memory chips decreased, according to the company, as a weak global economy reduced consumer spending on technology products and forced business clients to adjust their inventories to cope with worsening financial conditions. Samsung will release its finalised first quarter earnings later this month.
In the October to December quarter, Samsung reported a nearly 70% decline in profit, which partially reflected how global events like Russia's conflict with Ukraine and high inflation have shook the technology markets.
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Another significant South Korean semiconductor manufacturer, SK Hynix, announced this week that it sold $1.7 billion in convertible bonds into the company's shares to help pay for its purchases of chip-making components as it navigates the industry's downturn. For the months of October through December, SK Hynix reported an operating loss of 1.7 trillion won ($1.28 billion), which was the company's first negative quarterly result since 2012.
Although we have scaled back our short-term production plans, we still anticipate strong demand in the mid- to long-term, so Samsung said it would keep investing in infrastructure to ensure critical levels of clean room capacity and increase investment in R&D to solidify its technological leadership.
The world's largest semiconductor manufacturing base will be built in close proximity to Seoul as part of an ambitious South Korean project, according to plans made public by Samsung last month. The investment will total 300 trillion won ($227 billion) over the next 20 years.
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By 2042, Gyeonggi province will be home to a "mega cluster" of chip-making facilities, five of which will be built by Samsung close to its current manufacturing hub. According to the South Korean government, it will try to draw 150 additional businesses that make materials, components, or high-tech chips.
The South Korean plan comes as other technological giants like the US, Japan, and China are expanding their domestic chip manufacturing and using protectionist policies, tax breaks, and sizable subsidies to entice investments.