Hard Choices to Make
Samsung Electronics once again recorded a significant deficit of 4 trillion won (US$3.12 billion) in its semiconductor (DS) division for the second quarter of this year. Consequently, the company has decided to implement additional cutbacks in DRAM and NAND semiconductor production during the second half of the year.
Samsung Electronics announced on July 27 that its consolidated sales and operating profit for the second quarter, based on the linked basis, amounted to 60.01 trillion won and 670 billion won, respectively. These figures represent a 22 percent and 95 percent decline compared to the same period last year. However, when compared to the previous quarter, there was a slight increase in operating profit, leading to speculation about a potential stabilization in performance.
In terms of business segment, the DS division showed marginal improvement in its Q2 performance, narrowing the deficit to 4.36 trillion won from the 4.58 trillion won deficit reported in Q1. In contrast, the mobile and consumer electronics division (DX) displayed a positive outcome, generating a profit of 3.83 trillion won. Similarly, Samsung Display (SDC) and Harman achieved relatively favorable results with profits of 840 billion won and 250 billion won, respectively.
Addressing the pressing concerns over semiconductor production cutbacks, Samsung said during a conference call on the same day, “We are planning to continue adjusting production downward in the second half of the year to speed up inventory normalization. We will execute additional production adjustments for both DRAM and NAND with a particular focus on significant reductions for NAND.” The company showed its intention to implement this supplementary measure coupled with the existing cutback plan. Accordingly, some semiconductor market researchers state that the new strategic plan is expected to result in Samsung’s memory semiconductor production decreasing by up to 20 percent compared to last year. SK hynix had also previously announced an increase in NAND product cutback measures by 5 to 10 percent during their earnings conference.
Despite the challenging landscape, Samsung remains optimistic about the outlook for the memory semiconductor market after the second half of this year. Kim Jae-joon, vice president of Samsung Electronics’ memory business unit, said, “Memory inventory peaked in May and has since entered a declining trend, fueled by reductions in inventory among set companies. With additional cutbacks in the pipeline, there is a high probability of semiconductor prices reversing their trend and witnessing an upturn.”
He also expressed confidence in the potential of high bandwidth memory (HBM) as a promising new growth driver. “The company is preparing to secure at least twice the production capacity compared to this year in anticipation of the growing demand for HBM next year. Additionally, Samsung is preparing for increased productivity to meet additional orders in the second half of this year,” said Kim.
Meanwhile, Samsung Electronics remarkably allocated a substantial amount to research and development expenses in Q2, totaling 7.2 trillion won, setting a new record and surpassing the previous quarter. Concurrently, facility investment reached an all-time high of 14.5 trillion won, with 13.5 trillion won dedicated to the DS division and 600 billion won to the display division.