Samsung Electronics, the South Korean technology giant, reported a staggering 95% drop in operating profit for Q1 2023 compared to the same period last year. The company has attributed this significant decline to the reduced demand for memory chips. While Samsung has not disclosed the exact extent to which it will reduce its memory module production, industry analysts predict a cut of around 25%.
Semiconductor Analyst Minbok Wi from Daishin Securities estimates that Samsung could reduce memory chip production by 20% to 25% in the first half of 2023, compared to the same period in 2022. KB Securities, on the other hand, forecasts that Samsung will reduce NAND flash chip production by 15% and DRAM chip production by over 20%, starting in Q3 2023. Min Seong Hwang, an Analyst at Samsung Securities, believes that if inventory levels do not decrease as expected, the company may need to further reduce production.
Samsung to reduce the production of low-Cost DRAM modules, focus on DDR5
Samsung has stated that it has a sufficient inventory of memory chips to meet mid to long-term demand and is planning to reduce the production of legacy products. Although the company has not specified which memory chips will see a decrease in production, The Korea Herald reports that Samsung will focus on cutting the production of low-cost DRAM modules such as DDR3 and DDR4 due to their dwindling demand. Instead, the company will concentrate its efforts on advanced memory chips like DDR5, which are rapidly gaining popularity.
Recent market trends have not been favorable for Samsung, with the average contract price of an 8GB DDR4 RAM module falling by 19.9% last month, following an 18.1% drop in January. Although prices stabilized in February and March, they have begun to fall once again, despite Samsung’s announcement of a production cut. Market research firm TrendForce predicts a further 15% to 20% drop in prices during Q2 2023 as suppliers grapple with high inventory levels.
While the current outlook for Samsung and the chip industry appears bleak, some analysts remain optimistic, suggesting that a turnaround could be on the horizon in 2024. As the market continues to shift and advanced memory chips like DDR5 gain traction, Samsung’s decision to focus on next-generation technologies could position the company well for a recovery in the coming years.
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