Samsung Electronics has projected a gradual recovery for its chip business in the second half of 2023, following a record $3.4 billion loss in its semiconductor unit for the first quarter. The chip glut was driven by weak demand for tech devices amidst an economic slowdown and corporate belt-tightening. The downturn led to a decline in semiconductor purchases and plummeting chip prices, resulting in production cuts across the sector.
What to Expect?
Samsung expects that its customers will have run-down inventory by the second half of the year and will gradually start buying chips again. According to Jaejune Kim, Executive Vice President of Samsung’s memory business, the company anticipates that inventory levels will start dropping in the second quarter. Samsung, however, expects limited recovery for memory chips in the current quarter, as major data center firms invest more conservatively in servers.
The Influence of Inflation?
The world’s largest memory chipmaker, Samsung, saw operating profit fall to 640 billion won ($478.6 million) for the January-March quarter, down 95% from a year earlier. The chip division, usually its most reliable cash cow, reported a loss of 4.58 trillion won ($3.41 billion) compared to an 8.45 trillion won profit a year earlier.
Inflation has caused shoppers worldwide to cut back on purchases, resulting in smartphone, personal computer, and server companies running down inventories, which in turn caused chip prices to plunge by about 70% over the previous nine months. Samsung, like its smaller rivals such as SK Hynix, announced a rare chip production cut earlier this month. While this may lead to a slight recovery in chip prices, analysts believe Samsung’s profit in the current quarter may be similar to the first quarter, without a fundamental recovery in demand for devices that use chips.
Samsung Remains Optimistic
Samsung’s loss in its semiconductor unit underscores the impact of the global downturn in semiconductor purchases, which led to a decline in chip prices and production cuts across the sector. However, the company remains optimistic about a gradual recovery in the second half of 2023 as customers run down their inventories. Analysts predict that the road to recovery may be slow due to a fundamental lack of demand for devices that use chips, although chip prices may slightly recover following Samsung’s rare production cut.