Image Source: Unsplash

Over the last year, the global semiconductor industry has been in a downward spiral, primarily due to decreased personal computer demand following the COVID-19 surge. As a result, memory chip prices have plunged, with Samsung Electronics Co., the top manufacturer of memory chips, opting to cut production to expand its market share.

Samsung is now moving towards resolving the supply surplus with the announcement to slash memory chip production. Additionally, the company reported lower-than-anticipated first-quarter profits, the smallest since the great financial crisis. 

The South Korean chipmaker said on Friday that it would make a "meaningful" cut to chip output after operating profits cratered by more than 95% to 600 billion won ($450 million) for the first quarter, missing the average analyst estimate of 1.4 trillion won. Sales dropped by 19% to 63 trillion won. 

"We are lowering the production of memory chips by a meaningful level, especially that of products with supply secured," Samsung said. 

Samsung's shares closed up more than 4% in South Korea on the news, the highest in three months. Other memory chipmakers' shares also surged, including a 6% rise in Hynix.

Commenting on the cut is Greg Roh, the head of research at Hyundai Motor Securities, who said, "The production cut is evidence of how bad the current slump really is." 

"The company had warned that earnings would fall in the first quarter on slowing sales. But memory prices tumbled more than anticipated because of sluggish demand for a wide range of electronics from smartphones to PCs, as consumers and companies navigated recession risks. Despite its post-Covid re-opening, China's market has also not bounced back as quickly as some anticipated," Bloomberg said. 

The slide in memory chip prices and demand comes as the global economy faces a downturn. South Korea's chip exports have experienced one of the worst declines in over a decade. 

Despite the cut and the worst profit seen since 2009, Samsung said it would continue to invest in infrastructure and research.

One of the biggest problems for the industry is that memory chip inventories need to be lowered, and in order to reduce them, production cuts were needed. John Park, an analyst at Daishin Securities, said, "Today's production cut signal casts a positive outlook for a memory chip rebound in the second half of the year."

Later this month, Samsung will release a full financial statement with various divisions' net income and performance. 

More By This Author: