Samsung struggles to handle its chip production arm as its shares plunge by 96%

Samsung, a well-known electronics brand worldwide, is experiencing difficulty managing its chip production business as its stocks plummet by 96%. The company has accumulated significant inventories after preparing to meet the anticipated post-COVID demand that never materialized. Samsung’s initial assessment of its performance in the last quarter is negative. As a result, the company is now planning to make ‘meaningful cuts’ due to a slowdown in the global semiconductor market.

The world’s biggest memory chip and TV maker has estimated in a preliminary earnings statement that its operating profit dropped to $455.5 million in January-March, marking the lowest profit in 14 years for any quarter. The company plans to reduce the production of memory chips and focus on products with tight supply and sufficient inventories.

Samsung’s move to reduce production is a strong signal from the company, which had previously stated that it would only make minor adjustments such as pauses for refurbishing production lines, but not a complete cut. The company did not disclose the extent of the planned reduction.

Due to rising inflation, semiconductor buyers such as data center operators, smartphone, and personal computer manufacturers are avoiding new chip purchases and using up inventories. Analysts estimate that the chip division incurred quarterly losses of more than $3.03 billion as memory chip prices fell and inventory values were cut. This is a significant departure from the norm for Samsung’s chip business, which is typically a cash cow that generates roughly half of the company’s profits in better years.

Despite the disappointing results, shares in Samsung increased by 3% in early trading, while shares of its rival SK Hynix surged by 5% as investors welcomed Samsung’s plans to cut production to help preserve pricing power. Samsung is expected to release detailed earnings, including divisional breakdowns, later this month.