Samsung Sees $7-Billion Loss In Chip Business, Plan To Extend Production Costs

Samsung Sees $7-Billion Loss In Chip Business, Plan To Extend Production Costs

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Samsung Electronics has stated that the worst is likely behind for the global memory chip market, but they plan to extend production cuts due to the demand recovery being limited to high-end chips used in artificial intelligence (AI). The company has faced an unprecedented semiconductor downturn, leading to a significant operating loss of $7 billion from its chip business in the first half of this year.

While the business is expected to remain in the red in the current quarter, there is optimism that losses will almost halve to $2.3 billion from the previous quarter. However, a global economic slowdown and high-interest rates have dampened demand for most consumer goods following the pandemic-driven boom.

Samsung, the world’s largest memory chip maker, expects production cuts across the industry to continue in the second half, with a gradual recovery in demand as clients destock their chip inventory. The company’s memory chip stocks are decreasing rapidly after peaking in May, easing concerns about chip oversupply.

Samsung’s chip division incurred an operating loss of $4.36 billion in the April-June quarter, a significant decline from the $9.98 billion profit recorded a year earlier. While the losses reduced slightly from the first quarter, due to strong memory chip demand from AI applications, Samsung is lagging behind SK Hynix in AI-driven chip demand. SK Hynix, having better prepared for the growth in AI markets, leads in high-end DRAM chips.

Despite the challenges, AI remains a promising area for growth in the global tech sector, with substantial investment following the successful launch of the ChatGPT chatbot last year. Samsung is also working on its high bandwidth memory (HBM) products, aiming to increase supply capabilities.

For the June quarter, Samsung reported a 95 per cent plunge in operating profit to $669 million, in line with their estimate but the second-lowest quarterly profit in 14 years. The mobile business, however, saw a 16 per cent rise in operating profit to $3.04 trillion and anticipates sales growth in the second half, driven by premium products.

Recently, Samsung unveiled its latest foldable smartphones, maintaining prices at similar levels for a third year as it seeks to challenge Apple’s dominance in the high-end market.

In conclusion, while Samsung foresees improvements in the memory chip market and remains optimistic about AI-driven demand, the company is aware of the need to adapt and strategise to stay competitive in the ever-evolving tech industry.

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