Samsung Electronics, the South Korean tech giant, has revealed that it will reduce its chip production after experiencing its worst profit figures in almost 15 years. On Friday, the company announced that it expects first-quarter operating profits to plummet by over 96%, citing decreasing global memory chip sales. The January to March profits are anticipated to hit a 14-year low of KRW 600bn ($455m), which the company attributes to “continuing weak demand for IT products that have aggravated the performances of all sectors,” according to a regulatory filing.
Although the company did not specify the extent to which production would be reduced, it stated that it would be “meaningful.” The statement reads, “We are lowering the production of memory chips by a meaningful level, especially that of products with supply secured.” The decision is indicative of the impact of declining global economic conditions on South Korean chipmakers such as Samsung and SK Hynix, which have both experienced years of record-breaking profits on the back of soaring chip demand.
In the final quarter of 2022, Samsung’s profits fell by almost 70%, which was attributed to various headwinds, including Russia’s war in Ukraine and high inflation. The announcement comes as the latest indication of the effect of deteriorating economic conditions on the company and other conglomerates. Samsung Group, the largest of the family-run conglomerates, wields significant control over South Korea’s economy, accounting for approximately one-fifth of gross domestic product (GDP).
In recent times, the chip industry has experienced numerous challenges that have affected its growth trajectory. For instance, the chip shortage has been a significant challenge for the automobile industry, causing a slowdown in production and supply chain disruption. Moreover, the COVID-19 pandemic has had a severe impact on supply chains, as factories closed down to curb the spread of the virus. However, experts predict that the industry will recover in the long run due to the increasing demand for chips in various industries such as smartphones, laptops, and electric cars.
