Samsung Electronics cuts memory output as Q1 profit likely drops 96 pct on weak demand

Samsung Electronics Co. on Friday said it cut memory production in the short term, as its quarterly profit plunged significantly amid the chip downturn, in a sharp departure from its previous position that it would not artificially reduce output.

The world’s largest memory chip and smartphone maker earlier in the day estimated its January-March operating profit at 600 billion won (US$454.9 million), sharply down from 14.12 trillion won a year ago.

Samsung blamed sluggish demand for tech devices, coupled with customers’ inventory adjustment, for the poor performance.

“We are adjusting memory output to a meaningful level for products that we have secured enough inventory to deal with future demand,” the company said in a regulatory filing, in an apparent effort to deal with falling prices and a supply glut.

It did not elaborate on what a meaningful level means.

“While we have adjusted our short-term production plan, we will continue to invest in infrastructure to secure clean rooms and expand R&D expenditures to strengthen our technology leadership as we forecast solid demand in the medium and long term,” it said.

Samsung’s first-quarter sales likely fell 19 percent to 63 trillion won from 77.78 trillion won from a year earlier. The data for net profit was not available.

The operating profit was 16.7 percent lower than the average estimate, according to a survey by Yonhap Infomax, the financial data firm of Yonhap News Agency.

The tech giant did not provide the results of each business division and will release its final earnings report later.

Samsung’s Device Solution (DS) division, which oversees its chip business, is forecast to run a deficit of around 4 trillion won, in its first financial loss in 14 years, according to analysts’ estimates, as a surplus chip inventory has been growing significantly amid tapering global demand.

The last time Samsung saw its backbone unit trade at a deficit was the first quarter of 2009, when the world was emerging from the 2008 financial crisis.

The world’s largest memory chip maker forecast the global chip market will shrink 6 percent on-year to $563 billion this year, due to a sharp drop in demand, and warned of difficult conditions continuing throughout the year.

Analyst Kim Dong-won from KB Securities expected oversupply issues to start to be resolved in a few months, and DRAM and NAND flash prices to begin rebounding in the second half after hitting the bottom in the second quarter.

Samsung shares jumped 4.33 percent to finish at 65,000 won on the Seoul bourse Friday, far outperforming the wider market’s 1.27 percent gain, as investors pin high hopes on a faster recovery of the global chip industry following a production cut by Samsung.