Samsung Electronics is optimistic about the recovery of the global memory chip market, but it plans to extend production cuts due to a limited demand recovery in high-end chips used in artificial intelligence (AI). The company has incurred a record operating loss of $7 billion from its chip business in the first half of the year. While the loss is expected to decrease in the current quarter, it is likely that the business will remain in negative territory.
The global economic slowdown and high interest rates have dampened demand for most consumer goods after a pandemic-induced boom. Samsung expects production cuts to continue in the second half of the year, with gradual demand recovery as clients destock their chip inventory. Samsung’s executive vice president of memory business, Jaejune Kim, announced additional output adjustments for certain products, including NAND flash chips used for data storage.
Despite concerns about chip oversupply, Samsung’s comments eased worries and caused its shares to rise by 2%. Rival company SK Hynix also experienced a 9% increase in shares, reaching the highest level since March 2022. SK Hynix plans to cut NAND output between 5% and 10%, and it is expected to benefit from these efforts due to its heavy exposure to NAND chips.
Samsung’s chip division saw an operating loss of 4.36 trillion won in the second quarter, an improvement from the previous quarter due to increased demand for AI-related DRAM chips. However, Samsung is playing catch-up to SK Hynix in the high-end DRAM chip market. SK Hynix leads in high bandwidth memory (HBM) and premium DDR5 products used in AI chips. Samsung expects to release its own HBM3 chips later this year, and it aims to increase supply capabilities.
While a broader chip demand recovery is not expected until next year, AI remains a bright spot in the global tech sector. Samsung reported a 95% drop in operating profit for the June quarter, which was in line with its estimate. However, its mobile business experienced a 16% rise in operating profit and expects sales growth in the second half, driven by premium products.
In an attempt to challenge Apple’s dominance in the high-end market, Samsung unveiled its latest foldable smartphones at similar price points to the previous years. The company aims to maintain its competitiveness and capture market share.
In conclusion, Samsung is cautiously optimistic about the recovery of the memory chip market but plans to extend production cuts due to limited demand for high-end AI chips. While the chip division continues to incur losses, Samsung’s mobile business is experiencing growth. The company is focused on expanding its supply capabilities and competing with rivals in the high-end market.
