No Plan for Artificial Production Cut
The operating profit of the semiconductor division of Samsung Electronics dropped 96.95 percent year on year in the fourth quarter of 2022. Despite the worst performance in 13 years, Samsung Electronics said that there would be no artificial production cut and this year’s capex would be close to last year’s.
The company’s sales and operating profit were 70.46 trillion won and 4.31 trillion won in the fourth quarter of 2022, respectively. In 2022 as a whole, the figures were 302.23 trillion won and 43.38 trillion won, up 8.09 percent and down 15.99 percent year on year, respectively. The division’s Q4 operating profit is 270 billion won.
The company is planning to increase its R&D investment while not reducing its capex this year. “We are expanding engineering runs in order to further refine and stabilize our process technologies and, as such, the R&D investment-to-capex ratio will rise,” it said, adding, “At the same time, production line maintenance and equipment rearrangement will be conducted for even higher product quality and production line optimization.”
The global semiconductor industry outlook is extremely pessimistic and memory chip prices are continuing to fall. Under the circumstances, an increasing number of companies in the industry are reducing their production volumes. Attention is focusing on the outcome of Samsung Electronics’ different decision.
Market research firm DRAMeXchange announced on Jan. 31 that the average contract price of DDR4 8Gb 1Gx8 products fell 18.1 percent to US$1.81 in January this year. For reference, the price dropped more than 22 percent to US$2.21 in October last year and the average contract price of 128Gb 16Gx8 products did not change from US$4.14 in January this year after successive falls in June to October last year.
According to industry sources, memory chip prices are yet to hit the bottom despite last year’s falls. According to market research firm TrendForce, DRAM chip and NAND flash prices are likely to fall 20 percent and 10 percent in the first quarter of this year, respectively. In addition, the former is likely to fall 11 percent in the second.
This is due to inventory increase amid worsening global economic conditions. According to Bloomberg, the current inventory level is more than 300 percent of the normal level, the worst in history, and it is seriously affecting the profitability of manufacturers in the industry for more than six months.
Samsung Electronics announced on Jan. 31 that the operating profit of its semiconductor division was 270 billion won in the fourth quarter of 2022, down more than 96 percent from a year ago. SK Hynix is likely to announce a quarterly operating loss in 10 years on Feb. 1. Securities companies’ average estimate is 1.21 trillion won in operating loss and 8.11 trillion won in sales, down 34.42 percent from a year earlier.
TrendForce pointed out that companies in the industry need to further reduce their production against the downward price trend. Late last year, major companies announced investment reduction along with production cut. For instance, SK Hynix is planning to more than halve its investment this year. Micron Technology and Kioxia announced that they would reduce production by 20 percent and 30 percent, respectively.
By contrast, Samsung Electronics said there would be no artificial production cut such as wafer input volume reduction. “We are not going to reduce capex this year and this is to better respond to long-term demand,” it said, adding that its R&D investment would increase in the same context.