Samsung’s Surprising Q1 Profit Plunge: A Shift in Strategy Amid Falling Demand for Memory Chips
In the face of a global economic slowdown and plummeting demand, the performance of flash memory chip manufacturers has taken a significant hit. While some manufacturers have already started to cut production, Samsung previously declared that it would not do so. Instead, Samsung implemented a price reduction strategy to grab market share. This approach seemed to be working, as Samsung’s market share in flash memory chips has gradually increased.
Analysts initially predicted that Samsung and the semiconductor industry as a whole would gradually overcome this crisis, with performance expected to improve. However, Samsung’s Q1 2023 performance proved to be worse than anticipated. The company’s latest earnings guidance indicates that Q1 operating profit in 2023 dropped by 95.8%, significantly lower than analysts’ expectations.
Samsung cited an oversupply of chips and worsening market conditions as reasons for the poor performance, as buyers have reduced procurement amid the global economic slowdown. Earnings guidance for Q1 includes an operating profit of KRW 600 billion, a year-on-year decrease of 95.8%, and sales revenue of KRW 63 trillion, a year-on-year decrease of 19%.
It is still unclear what Samsung’s shipment volume is. Once the official financial report is released, it will be possible to determine whether the decrease in sales revenue is due to a decrease in shipment volume or a result of the price reduction strategy that maintained shipment volume while reducing both sales revenue and profit.
In light of these circumstances, Samsung announced a meaningful reduction in chip production, though specific plans have not yet been disclosed. Following Samsung’s announcement, shares of SK Hynix, one of the first manufacturers to announce production cuts, immediately rose by 5%. Investors clearly believe that SK Hynix’s approach is correct, as reducing production capacity can help maintain pricing power.
Previously, SK Hynix and Micron had announced production cuts. Now that Samsung has also announced a reduction in production capacity, other manufacturers who have not yet decided to cut production are likely to follow suit.
Note: The information above pertains solely to Samsung Electronics, a subsidiary of the Samsung Group, and does not include the performance of other subsidiaries or departments.