Samsung cutting memory chip production as profit slides

Samsung Electronics said Friday it’s cutting the production of its computer memory chips in an apparent effort to reduce inventory as it forecasted another quarter of sluggish profit.

The South Korea-based technology giant in a regulatory filing said it has been reducing the production of certain memory products by unspecified “meaningful levels” to optimize its manufacturing operations, adding it has sufficient supplies of those chips to meet demand fluctuations.

The company predicted an operating profit of 600 billion won ($455 million) for the three months through March, which would be a 96% decline from the same period a year earlier. It said it sales during the quarter likely fell 19%, to 63 trillion won ($47.7 billion).

Samsung, which will release its finalized first quarter earnings later this month, said the demand for its memory chips declined as a weak global economy depressed consumer spending on technology products and forced business clients to adjust their inventories to nurse worsening finances.

Samsung had reported a near 70% drop in profit for October-December quarter, which partially reflected how global events like Russia’s war on Ukraine and high inflation have rattled technology markets.

SK Hynix, another major South Korean semiconductor producer, said this week that it sold $1.7 billion of bonds that can be exchanged into the company’s shares to help fund its purchases of chipmaking materials as it weathers the industry’s downswing. SK Hynix had reported an operating loss of 1.7 trillion won ($1.28 billion) for the October-December period, which marked its first quarterly deficit since 2012.

“While we have lowered our short-term production plans, we expect solid demand for the mid- to long-term, so we will continue to invest in infrastructure to secure essential levels in clean room capacities and expand investment in research and development to strengthen our technology leadership,” Samsung said.

Samsung last month announced plans to invest 300 trillion won ($227 billion) over the next 20 years as part of an ambitious South Korean project to build the world’s largest semiconductor manufacturing base near the capital, Seoul.

The chip-making “mega cluster,” which will be established in Gyeonggi province by 2042, will be anchored by five new semiconductor plants built by Samsung near its existing manufacturing hub. It will aim to attract 150 other companies producing materials and components or designing high-tech chips, according to South Korea’s government.

The South Korean plan comes as other technology powerhouses, including the United States, Japan and China, are building up their domestic chip manufacturing, deploying protectionist measures, tax cuts and sizable subsidies to lure investments.