Samsung Electronics to cut chip output after posting smallest profit in 14 years

[Photo by Kim Ho-young]

Samsung Electronics Co. said it is cutting semiconductor production after reporting its smallest quarterly profit in 14 years as a global economic slowdown and swelling inventory led to a plunge in chip prices.

The electronics giant posted an operating profit of 600 billion won ($454.8 million) in the first quarter, a 95.75 percent decline from a year earlier, according to regulatory filing on its preliminary earnings Friday. That’s the smallest since the first quarter of 2009 when it reported 590 billion won profit and lower than the 720.1 billion won profit estimated by 18 analysts.

Samsung Electronics also said it will reduce output of memory chips, shifting from its earlier stance that there would be no “artificial production cut.”

“We are adjusting memory chip production to a meaningful level for products that we have secured enough inventory to deal with future demand,” Samsung Electronics said in the regulatory filing. The company didn’t provide more details, including the size of the adjustments.

“While we have made adjustments for short-term production, we will continue to invest to secure clean rooms and in R&D to strengthen our technological leadership as mid- to long-term demand is expected to be solid,” the company said.

First-quarter sales stood at 63 trillion won, down 19 percent fall from a year ago, due to the weak demand for chips and falling prices since the latter half of last year.

According to data of market data tracker Yonhap Infomax on the consensus of 18 securities firms that released a forecast within the last month, the first-quarter operating profit of Samsung Electronics had been projected to plunge 94.9 percent to 720.1 billion won and sales 17.34 percent to 64.30 trillion won.

The market had predicted an operating profit in the range of 1 trillion won to 2 trillion won at the beginning of this year, but expectations have since been lowered as the chip industry worsened in January.

Meanwhile, shares of Samsung Electronics is up 3.47 percent at 64,400 won on Friday morning.

Analysts predict Samsung Electronics’ chip business, which generally account for 60 percent to 70 percent of the company’s operating profit, could have lost about 4 trillion won. The company will release more details of its first-quarter earnings at a later date.