Samsung flags H2 recovery after $3.4 bln chip loss in Q1

Samsung Electronics Co Ltd (005930.KS) flagged a gradual recovery for chips in the second half of the year after its semiconductor business reported a record $3.4 billion loss on Thursday, driven by a chip glut from weak demand for tech devices.

A global downturn in semiconductor purchases amid an economic slowdown and corporate belt-tightening sent chip prices plummeting in the first quarter, triggering production cuts across the sector.

 

By the second half of the year, customers will have run down inventory and will gradually start buying chips again, Samsung said.

"We expect inventory levels to start dropping in the second quarter," said Jaejune Kim, executive vice president of Samsung's memory business.

For the current quarter, Samsung said it expected limited recovery for memory chips as major data center firms invested more conservatively in servers.

 

The world's biggest memory chipmaker said operating profit fell to 640 billion won ($478.6 million) for the January-March quarter, down 95 percent from a year earlier and its smallest profit for any quarter in 14 years.

The South Korean tech giant's chip division - normally its most reliable cash cow - reported a 4.58 trillion won ($3.41 billion) loss compared to a 8.45 trillion won profit a year earlier.

Shoppers around the world have cut back on purchases due to surging inflation. As a result, smartphone, personal computer and server companies have run down inventories, causing chip prices to plunge by about 70 percent over the previous nine months.

Samsung announced a rare chip production cut earlier this month, joining smaller rivals such as SK Hynix Inc (000660.KS).

Although this could help chip prices recover slightly, analysts said Samsung's profit in the current quarter may be similar to the first quarter without a fundamental recovery in demand for devices that use chips.

 

"In addition to production cuts in the current quarter, Samsung said its production will be flexible in the second half, which means it could engage in more cuts to manage inventory," said Lee Min-hee, analyst at BNK Investment & Securities.

BUY CHIPS AGAIN

 

Despite the record loss in chips, Samsung said capital expenditures in the first quarter totaled 10.7 trillion won, the highest for the first quarter of any year.

Out of that, 9.8 trillion won was spent on chips as Samsung sets up production in its Taylor, Texas and Pyeongtaek, South Korea factories.

Samsung said it planned to keep this year's memory chip investment at a similar level to 2022 to secure plant space.

Its positive long-term outlook remained unchanged as the proliferation of electric vehicles, artificial intelligence and high-performance computing would fuel demand for chips, it said.

Samsung's mobile business was a bright spot, reporting 3.94 trillion won profit in the first quarter, up from 3.82 trillion won a year earlier.

"Samsung is focusing on profit rather than shipments" as it meets more resilient demand for premium smartphones rather than volume, said Jene Park, senior analyst at Counterpoint.

In the second half, Samsung forecast the smartphone market would increase in both shipments and revenue.

Shares in Samsung rose 0.3 percent after the earnings call, reversing an earlier drop. The stock has risen about 16 percent year-to-date as investors anticipate a memory chip recovery in the second half.