Samsung Plans to Reduce Memory Chip Production to Minimize Financial Losses

The company in charge of the lucrative chip fabrication industry, Samsung Device Solutions (DS), reported a loss in the first quarter of this year, marking its first negative quarter since 2009. Samsung is reducing production goals since the rest of this year doesn't seem promising either.

Operating loss decreased from KRW 4.6 trillion in Q1 to KRW 4.36 trillion in Q2. According to KB Securities analyst Kim Dong-won, the loss for Q3 would be close to KRW 4.0 trillion ($2.95 billion).

Kim Kwang-jin of Hanwha Investment & Securities and Greg Roh of Hyundai Motor Securities both predict reduced losses for Q3 of KRW 3.7 trillion and KRW 3.6 trillion, respectively.

Samsung decreased the output of DRAM and NAND flash chips by 20% and 30%, respectively, in the first half of the year. According to Kim Dong-won, the cutbacks will increase to 30% and 40%, respectively, during the second half of the year.

The issue is a lack of demand for semiconductors; Samsung's rivals SK Hynix and Micron Technology already reduced manufacturing last year. Since there are now too many chips on the market, it will take some time for supply and demand to balance.

The "cash cow" for Samsung is the memory business, which is managed by the DS division. Of the entire KRW 60.01 trillion in revenues, 14.73 trillion KRW were earned in Q2 of this year. Looking back at Q2 of last year, the division produced an operating profit of KRW 9.98 trillion and generated KRW 28.5 trillion of the division's total KRW 77.2 trillion in sales.

In addition to the decline in demand, Samsung Device Solutions is now planning to launch a new production line at the Pyeongtaek Campus, which is another factor contributing to the current losses.