Analysts predicted on Saturday that Samsung Electronics Co. will narrow its chip deficit in the third quarter due to its ongoing production cuts. The world’s leading memory chip maker began decreasing its chip output earlier this year, following the lead of competitors such as SK hynix Inc. and Micron Technology Inc., which had already started to cut production at the end of last year in order to address a surplus of supply.
KB Securities’ Kim Dong-won forecasted that Samsung’s Device Solutions (DS) division, which oversees the company’s chip business, will incur a loss of approximately 4 trillion won (US$2.96 billion) in the Q3, smaller than the 4.35 trillion won loss in the Q2. Samsung has increased its production cuts in the second half to 30 percent for DRAM and 40 percent for NAND Flash, compared to the 20 percent and 30 percent cuts in the first half.
Samsung’s DS division registered an operating loss of 4.6 trillion won in the first quarter, its first financial loss in 14 years, as stockpiles of chips rose sharply due to declining global demand. Prior to that, the division had only experienced losses in the first quarter of 2009.
Although the production cuts and a more balanced supply and demand situation have started to push up memory chip prices, high fixed costs resulting from the idling of manufacturing facilities are eating into profits, according to Kyobo Securities analyst Choi Bo-young.
Hanwha Investment & Securities’ Kim Kwang-jin estimated the DS division’s loss at 3.7 trillion won in the Q3, predicting that Samsung will take longer than expected to recover its chip business. Hyundai Motor Securities’ Greg Roh also calculated the DS division’s loss at 3.6 trillion won, noting that Samsung’s production cuts have had “minimal” effect so far. Roh added that the ramp-up of a new chip production line in the Pyeongtaek Campus has led to an increase in depreciation costs.
TrendForce commented that Samsung has gone further than initially anticipated to address the oversupply issue, citing the firm’s “decisive step” to cut NAND Flash production by 50 percent in order to tackle the weakening demand. The market tracker stated that this move is likely to stabilize chip prices and stimulate demand in the coming months, and that it will have a positive effect on module makers’ profits.