The unusual output cut by the world's biggest memory
chipmaker - with no previous announcement recalled by Samsung officials and
analysts - came after it flagged a worse-than-expected 96 percent plunge in
first-quarter profit
Investors brushed off the profit miss, betting the move by
the industry leader would support chip prices that had fallen by about 70
percent over the last nine months.
Samsung jumped 4.5 percent in early trading in the biggest
one-day rise since September, while rival SK Hynix Inc's shares surged 5.6
percent.
Smartphone and personal computer makers had stocked up on
chips during the pandemic when demand for consumer devices surged, but they are
now running down inventories as shoppers cut back on purchases amid rising
inflation.
Samsung said memory demand had dropped sharply because of a
weak global economy and customers slowing purchases as they focused on using up
their stocks.
"We are lowering the production of memory chips by a
meaningful level, especially that of products with supply secured," it
added, in a reference to those with sufficient inventories.
Samsung did not disclose the size of the planned production
cut, but it sent a strong signal for a company that had previously said it
would make small adjustments like pauses for refurbishing production lines but
not a full-blown cut.
"The fact that the No. 1 market share firm is joining
production cuts lifted shares... SK Hynix and Micron have declared production
cuts, but only Samsung had not, so the market was watching for it," said
John Park, an analyst at Daishin Securities.
It did not say how its 2023 investment plans would be
affected, having previously flagged capital spending similar to the KRW 53.1 trillion
investment in 2022.
SK Hynix said in October it would more than halve its
capital spending in 2023 versus 2022, while Micron cut fiscal 2023 investment
plans by more than 30 percent in September.
Record chip loss
Samsung estimated its operating profit fell to KRW 600
billion in January-March, from KRW 14.12
trillion a year earlier, in a short preliminary earnings statement. It was the
lowest profit for any quarter in 14 years.
The first-quarter profit fell short of a KRW 873 billion
Refinitiv SmartEstimate, weighted toward analysts who are more consistently
accurate. Multiple estimates were revised down earlier this week.
Its chip division is likely to report a record loss of KRW
2.1 trillion, according to an average of analyst forecasts, and post another
KRW 2 trillion loss in the current quarter, a major divergence for what had
been Samsung's most important cash cow, generating about half of its profits in
better years.
Analysts said Samsung's production cut might improve its
performance slightly in the current quarter and could also cement or hasten the
rebound of memory chip prices.
"Samsung talking about production cuts is evidence of
how bad the current slump really is," said Greg Roh, head of research at
Hyundai Motor Securities.
The company is due to release detailed earnings, including
divisional breakdowns, later this month. © Reuters