Samsung has reported a sharp decline in sales due to a sluggish global economy and reduced demand following the Covid pandemic. The company's preliminary results reveal that its operating profits have plummeted by 600 billion won (£366m) in January-March, down from 14 trillion won the previous year. Despite this setback, Samsung shares have increased by more than 4%. The tech giant has announced that it will be decreasing memory chip production, particularly for products with a secure supply.
The Covid lockdowns had caused a surge in demand for memory chips as consumers purchased new electronic devices for home use. The industry is gradually recovering from a two-year-long chip shortage, but many semiconductor manufacturers are grappling with finding a balance between their inventory and present demand.
Analyst Peter Hanbury from management consultancy Bain & Company explained that the overall economy's slowdown had led to a decrease in demand for end products. Therefore, the makers of these products had ceased to order chips and focused on selling through the inventory they already had. This caused a strong "bullwhip" effect for semiconductor manufacturers further back in the supply chain where high demand suddenly disappeared. Samsung, the world's largest maker of televisions, tablets, and smartphones, had earlier refused to reduce memory chip production, unlike its competitors. Analysts say the firm's decision to cut production is infrequent.
However, last month, Samsung announced its intention to invest 300 trillion won over 20 years to build a mega semiconductor hub in South Korea. Dylan Patel, Chief Analyst at SemiAnalysis, explained that Samsung is facing a dual challenge of DRAM and NAND memory chips losing money and requiring upgrades to their factories due to falling behind in the past few years. Investors are optimistic that Samsung's announcement indicates the semiconductor industry's recovery. Peter Hanbury anticipates the inventory "digestion" phase to conclude within the next three to six months, and the end markets will return to a more natural buying pattern. Samsung is scheduled to release its detailed earnings report later this month.
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