Samsung Electronics Q1 Operating Profit Drops 95.8%. An Intentional Cut in Memory Chip Production Is Official

Samsung Electronics Corporation Headquarters. Yonhap News

Samsung Electronics recorded a shocking plunge in earnings, with operating profits in the first quarter dropping nearly 96% due to deteriorating business conditions for memory chips. Samsung, which had insisted that there would be no artificial reduction in production officially acknowledged for the first time that it was decreasing the production of memory chips to a significant level.

Samsung Electronics recorded consolidated operating profits of 600 billion won in the first quarter of 2023, which was tentatively estimated as a 95.75% drop from the same period last year. This was the first time Samsung’s quarterly operating profits fell below 1 trillion won in fourteen years, since Q1 of 2009 (590 billion won).

Consolidated sales also fell 19% year-over-year to 63 trillion won. The demand for semiconductors began slowing down in the second half of last year, which led to poor shipment and dropping prices at a rate that was worse than market expectations.

Samsung did not release the specific performance of each business on Friday. However, the securities industry expected semiconductors, which usually accounted for 60-70% of operating profits at Samsung Electronics, to have recorded losses of around 4 trillion won.

On Friday, Samsung Electronics announced that the company was reducing the production of memory chips to a “meaningful” level focusing on products with supply already secured. This follows the company’s efforts to optimize the operation of future production lines and to expand the proportion of engineering runs already in progress, based on the judgment that the company has secured enough supply to respond to future changes in demand for certain memory chips. This was the first time that Samsung, which had resisted any intentional production cut, officially admitted to reducing production.

Despite market expectations that Samsung would cut production, it announced that its capital expenditure in 2023 would be similar to that of the previous year in a conference call in Q4 2022.