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Samsung Electronics will stop making memory chips because it thinks its quarterly operating profit will drop by 96%.
The chip-making giant said sales had dropped sharply because the world economy was slowing and there was less demand after Covid.
From January to March, Samsung’s operating profits fell from 14 trillion won the year before by 600 billion won, or £366 million.
Even though the company decided to slow down making chips, its shares went up by more than 4%.
The South Korean tech giant said, “We are cutting the number of memory chips we make by a significant amount, especially for products that have a steady supply.”
During lockdowns caused by Covid, people bought more memory chips as they bought new electronics to use at home.
In the past couple of years, there was a shortage of chips, but the industry is now getting back on its feet. However, many semiconductor manufacturers still need help finding a good balance between their stock and current demand.
“When the economy as a whole slowed down, there was a sudden drop in demand for these end products. So, the companies that made these final products stopped ordering chips and focused on selling what they already had, “said Peter Hanbury, an analyst at the management consulting firm Bain & Company.
“This had a strong “bullwhip” effect on semiconductor makers further back in the supply chain, whose sky-high demand during the chip shortage suddenly stopped,” he said.
Samsung, which makes more T.V.s, tablets, and smartphones than any other company, fought against the plan to cut memory chip production.
Analysts say it is unusual for a company to say it will cut production. However, last month, it said it would invest 300 trillion won over 20 years to make South Korea a mega semiconductor hub.
“DRAM and NAND [memory chips] are losing money, and their factories need to update the process technology they use because they’ve fallen behind in the last couple of years,” said SemiAnalysis’s chief analyst, Dylan Patel.
Investors hope that Samsung’s news is a sign that the semiconductor market will start to improve.
“We think this phase of “digesting” the inventory will be over in 3 to 6 months. At that point, the end markets will have sold off all of their stock and gone back to buying more normally, “said Peter Hanbury.
Later this month, the company will give more information about its earnings.
Samsung will put money into mega chip-making plan
Samsung, a big electronics company, says it will invest about 300tn won ($230.8bn or £189.6bn) over the next 20 years to help the South Korean government build a mega semiconductor hub in the country.
The company told the BBC that this money would be used to build five chip factories.
Samsung makes the most memory chips, smartphones, and T.V.s in the world.
Under the official plan, companies in high-tech fields will be given incentives like bigger tax breaks and help with building and maintaining infrastructure.
It said it wanted to get about 550 trillion won in private investment and “leap forward as a major country in the middle of a fierce global competition over advanced industries.”
Semiconductors are at the heart of a fight between the U.S. and China. They are used to power every gadget from cell phones to military equipment.
In October, Washington said that any company that makes chips worldwide with U.S. tools or software and then sells them to China would need a license.
In order to protect national security, the Netherlands said it also planned to limit the export of its “most advanced” microchip technology.
At about the same time, South Korea’s trade ministry expressed worries about how the U.S. treats semiconductors.
The ministry said that the Chips Act “could make business more uncertain, violate companies’ rights to management and technology, and make the U.S. less appealing as a place to invest.”
In response to U.S. export restrictions, China has often called the U.S. a “tech hegemony.”
S.K. Hynix is another big company that makes microprocessors and is based in South Korea.
The Netherlands restricts the use of its most advanced chip technology
In order to protect national security, the Dutch government is going to put limits on the country’s “most advanced” microchip exports. This is similar to what the U.S. did.
It will include products made by ASML, a key company in the supply chain for microchips worldwide.
China has responded by filing a formal complaint about the move.
It hoped the Netherlands wouldn’t “abuse export control measures like some other countries have.”
In response to U.S. export restrictions, China has often called the U.S. a “tech hegemony.”
Semiconductors are at the heart of a fight between the U.S. and China. They are used to power everything from cell phones to military equipment.
Mao Ning, a spokeswoman for China’s Foreign Ministry, said that the Dutch move was meant to take away China’s right to grow.
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Dexter Roberts, a fellow at the Atlantic Council think tank in Washington, DC, told the BBC that the Netherlands’ decision was “a real step forward, a real victory for the U.S., and also very bad news for China.”
