Samsung to further cut production of memory chips to stem the losses

Samsung Device Solutions (DS), the division in charge of the lucrative chip production business, posted a loss in the first quarter of this year, its first quarter in the red since 2009. Unfortunately, the rest of this year isn’t looking good either, so Samsung is slashing production targets.

The operating loss in Q1 was KRW 4.6 trillion, which was lowered to KRW 4.36 trillion in Q2. The loss for Q3 will be around KRW 4.0 trillion ($2.95 billion), predicts analyst Kim Dong-won from KB Securities.

Other analysts are forecasting smaller loses for Q3 – KRW 3.7 trillion, according to Kim Kwang-jin from Hanwha Investment & Securities, and KRW 3.6 trillion, according to Greg Roh from Hyundai Motor Securities.

In the first half of the year Samsung reduced production of DRAM chips by 20% and of NAND flash chips by 30%. For the second half of the year the cuts will grow to 30% and 40%, respectively, says Kim Dong-won.

The issue is low demand for chips – Samsung rivals SK hynix and Micron Technology already reduced production last year. There is still an oversupply of chips and it will take a while for supply and demand to even out.

The memory business run by the DS division is described as Samsung’s “cash cow”. In Q2 this year it brought in KRW 14.73 trillion of the total KRW 60.01 trillion in revenues. Looking back at last year’s Q2, the divison brought in KRW 28.5 trillion of the total KRW 77.2 trillion in revenue and posted an operating profit of KRW 9.98 trillion.

Samsung Device Solutions is currently working on getting a new production line at the Pyeongtaek Campus up and running, which is another reason for the current losses in addition to the demand slump.

Source | Via