Samsung Electronics cuts production in Q1 on supply glut, mounting inventory

Tech

Published: 23 Mar. 2023, 18:55 Updated: 23 Mar. 2023, 19:35

Samsung Electronics cuts production in Q1 on supply glut, mounting inventory

Samsung Electronics engineers walk in a production line facility in the company's chip complex in Pyeongtaek, Gyeonggi. [YONHAP]

Samsung Electronics is cutting production more noticeably in the first quarter due to a severe supply glut and mounting inventory levels, according to market analysts.

Analysts estimate varied rates of this production reduction, from 7 percent to 30 percent in some memory chip products.

Doh Hyun-woo, an analyst at NH Investment & Securities, said that the degree of production cut is “more significant than reported.”

“The amount of orders that partnered test and parts companies are getting [from Samsung Electronics] is 30 percent less,” the analyst noted in a report, without elaborating further.

Samsung Electronics presently holds 21 weeks of dynamic random-access memory (DRAM) inventory, higher than the amount held by competitors, according to Doh.

The world’s largest memory chip maker has been cautious to delineate whether it is cutting back, although competing producers like SK hynix and Boise, Idaho’s Micron made it clear that they are slashing production.

In public comments, Samsung Electronics executives stressed that there will be no “artificial” cutback in memory chip production.

Still, that leaves open the possibility of rejiggering manufacturing processes to trim overall production capacity.

“To maintain the best quality and efficiency, we are pushing to rearrange equipment in an effort to migrate to a more advanced manufacturing process,” said Kim Jae-joon, executive vice president at Samsung Electronics.

“In this process, it is inevitable that it will affect bit growth to a meaningful degree,” Kim said during a conference call in January.

Pak Yu-ak, an analyst at Kiwoom Securities, anticipated a 7 percent decline in the chip company's wafer input capacity in the first half of this year.

Samsung’s rate of decrease still remains smaller than that of rivals including Micron, SK hynix and Kioxia, as all of them are expected to post over a 10 percent drop in wafer input capacity, according to Pak.

Still, the reduction won’t likely turn any steeper since the company began pilot production at its new chip plant in Pyeongtaek, Gyeonggi.

“Samsung is going to optimize the legacy production lines of Line 15, so this fab will experience a marginal drop in DRAM wafer input,” said market tracker TrendForce.

“The newly built P3L, which is the focus of Samsung’s capacity expansion efforts, has begun pilot production in the first quarter, 2023 and will be mainly responsible for driving the growth of the supplier’s total DRAM wafer input for this year,” it noted.

The effect of the recent cutback will likely become more obvious in the fourth quarter.

“Given that the current turn-around time is five to six months, the effect of the production cut will begin to show starting from the fourth quarter of 2023. And the reduction rate is estimated to be between 5 and 6 percent,” said Ko Young-min, an analyst at Shinhan Securities.

Despite the cutback effort, Samsung Electronics could face an operating loss of up to 4 trillion won ($3.1 billion) from its memory chip division in the first quarter, according to analysts.

It would be the first loss for the division since the fourth quarter of 2008 when the world was reeling from an economic crisis sparked by the bankruptcy of Lehman Brothers.

Even if the memory chip division incurs trillions of won of losses, the overall balance will remain in the black due to its dominance in smartphones and appliances.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]