Samsung Cuts Memory Chip Output On Weak Demand Amid Supply Glut

New Delhi: Samsung Electronics said on Friday that it was reducing memory chip production after it flagged a 95.8 percent plunge in the first quarter's operating profit from the same period last year, as a downturn in semiconductor demand hurts it and other manufacturers of the components, according to Nikkei Asia.

"The company is cutting memory production volumes to a meaningful level," the South Korean company said in a statement shortly after releasing earnings guidance, adding, "Demand for memory has declined due to the macroeconomic situation and low consumer sentiment," Samsung said operating profit likely came down to 600 billion won (USD 455 million) for the three months through the end of March, compared with 14.1 trillion won last year. (Also Read: Bill Gates, Ex-Wife Share First Pic With Granddaughter - Check Pics)

It sees revenue having fallen 19 percent to 63 trillion won during the same period. The company will release full earnings data, including for net profit, later this month, Nikkei Asia reported. (Also Read: Scientists Claim AI To Overtake Humans Soon)

Nikkei Asia said the guidance is lower than a FnGuide consensus which predicted Samsung's quarterly operating profit at 1 trillion won and revenue at 64.2 trillion won. The research firm collected data from 22 brokerage houses.

Investors welcomed Samsung's decision to cut memory chip production, sending the company's shares 4.3 percent higher to close at 65,000 won, Nikkei Asia reported.

Though Samsung acknowledged a worsening in its memory business, it did not unveil numbers by sector, Nikkei Asia reported. Analysts, however, estimate that its semiconductor business may have posted an operating loss of more than 4 trillion won in the quarter.

Samsung is the world's biggest memory chipmaker, accounting for about 40 percent of dynamic random-access memory (DRAM) and one-third of NAND flash memory markets.

NAND memory is a form of electronically erasable programmable read-only memory (EEPROM). Nikkei Asia reported that the guidance came as demand for memory chips, traditionally subject to boom and bust cycles, has fallen sharply, causing oversupply in the market.

Hong Kong-based industry analysis firm Counterpoint Research says that Samsung's decision to cut production may help slow down the decline of memory chip prices to some extent, but doesn't see it leading to a rebound in chip demand.

"Counterpoint expects that the utilisation rate reduction [will] slow down the decline of commodity memory prices," Brady Wang, a senior analyst, told Nikkei Asia in an email."

Still, this oversupply is due to weakening demand and high inventory, so Samsung's production cut is not expected to stimulate sales," Wang said, adding, "Therefore, Counterpoint believes that the oversupply situation will continue until the third quarter when the market starts to deplete inventory for the fourth quarter seasonal demand."