Due to the expected recession, the decline in demand for electronic equipment has led to a "cold winter" for the chip industry.

On Tuesday, Samsung Electronics, the world's largest maker of memory chips and smartphones, reported its lowest quarterly profit in eight years, saying continued macroeconomic uncertainty would make the situation grim in the first half of the year and that industry demand could begin to recover in the second half of the year.

Samsung said weak demand and inventory adjustments would continue to affect its chip business in the first quarter and expected "year-on-year decline in demand for smartphones due to the economic slowdown in major regions".

Profits in the chip business plummeted 90%

Samsung Electronics' operating profit in the past quarter was 4.3 trillion won ($3.49 billion), below analysts' estimates of 5.8 trillion won and the lowest quarterly profit since 2014, according to Samsung Electronics earnings guidance. It was 13.87 trillion won in the same period last year, down nearly 69% from a year earlier.

Samsung's net profit for the quarter was 23.84 trillion won, up 120% from a year earlier, while revenue fell 8% to 70.46 trillion won.

Notably, Samsung said profits in its chip business plunged more than 90 per cent to 270 billion won ($220 million) in the past three months, compared with 8.83 trillion won in the same period last year, as customers continued to process inventory.

The decline in Samsung's performance was due to falling consumer demand for electronic devices, while corporate customers spent less in a weak economy, dragging down the price of memory chips.

According to TrendForce, the price of memory chips fell by double digits in 2022, and the market is widely expected to decline further in the first quarter of this year, as customers continue to delay purchases and empty existing inventory while demand for equipment remains sluggish.

The declining performance of the industry is already a common phenomenon. Last week, chipmaker Intel Corp said it expected to lose money this quarter as the PC industry faces a chip glut.

Earlier, chipmakers such as SK Hynix, Micron Technology Inc and Xia Xia have all said they will slash investment in 2023.

Consider reducing production

In addition, a person familiar with the matter revealed that Samsung Electronics is considering reducing semiconductor production due to the possibility of huge operating losses in the first quarter of this year.

Samsung Electronics is considering cutting chip input to produce fewer DRAM and NAND chips, the person familiar with the matter said.

Previously, Samsung Electronics executives said they would reduce their production plans, promote chip manufacturing technology, tide over the industry's oversupply and widen the technology gap with competitors.

In response, Juni Li, an analyst at Goldman Sachs Group, wrote in a report that memory pricing is likely to continue to decline in the first half of this year. "Samsung Electronics is expected to lose money on both its DRAM and NAND businesses from the first quarter of this year."

A research report on the global market of Citigroup also believes that the possibility of Samsung Electronics adjusting the supply of chips by slashing investment is increasing because the price of memory chips has dropped more than expected. Samsung's profitability may also be depressed below the "break-even point".

Edit / lydia