Samsung is cutting its chip production after 14 years of low profits

Samsung Electronics Co Ltd said on Friday it would make a “significant” cut in chip production after seeing a weaker-than-expected 96% drop in quarterly operating profit as a sharp downturn in the global semiconductor market worsens.

Shares in the world’s largest memory chip and TV maker rose 3% in early trade, while rival SK Hynix Inc rose 5% as investors welcomed plans to cut production to maintain pricing power.

Samsung estimated its short preliminary earnings statement to drop to 600 billion won ($455.5 million) in operating profit in January-March, from 14.12 trillion won a year earlier. It was the smallest profit in any quarter in 14 years.

“Demand for memory fell sharply … due to macroeconomic conditions and a slowdown in customer purchasing power as many customers continue to adjust their inventories for economic purposes,” the company said in a statement.

“We are reducing the production of memory chips at a meaningful level, especially the production of those products with supply security,” it added, referring to those with sufficient inventories.

The signal of a production cut is unusually strong for Samsung, which previously said it would make small changes, such as pauses to refurbish production lines, but not a full-scale cut.

It does not reveal the size of the planned surgery.

First-quarter earnings fell short of the 873 billion won Refinitiv SmartEstimate, which is weighted toward more consistently accurate analysts. Several estimates were revised earlier this week.

That was the lowest since a profit of 590 billion won in the first quarter of 2009, according to company data.

With consumer demand for tech equipment sluggish due to rising inflation, semiconductor buyers, including data center operators and smartphone and PC makers, are holding back on buying new chips and depleting their inventories.

Analysts estimated the chip division suffered a quarterly loss of more than 4 trillion won ($3.03 billion) as memory chip prices fell and its inventory was cut.

That would be the first quarterly loss for the chip business since the first quarter of 2009, a big difference in the usually cash cows that generate about half of Samsung’s profits in better years.

According to Samsung, turnover probably fell 19 percent from the same period last year to 63 trillion won.

The company is due to release detailed results, including divisional breakdowns, later this month.

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