Samsung Electronics is stopping its memory chip production after estimating a drop of 96 per cent in its quarterly operating profit.
The chip-making titan said sales had plunged due to slow global economy and less demand after the Covid pandemic.
Samsung also said its preliminary numbers showed operating profits fell £366 million from January to March.
It added: “We are lowering the production of memory chips by a meaningful level, especially that of products with supply secured.”
Analyst Peter Hanbury from management consultancy Bain and Company told the BBC: “When the overall economy slowed down, suddenly the demand for these end products slowed. So, the makers of these end products stopped ordering chips and focused on selling through the inventory they already had.
“This led to a strong ‘bullwhip’ effect for semi-conductor makers further back in the supply chain, where sky-high demand during the chip shortage suddenly dried up.”
Samsung – the world’s biggest maker of televisions, tablets and smartphones – is set to release detailed earnings later this month.
Samsung had resisted the move to cut memory chip production compared to its competitors despite a drop in demand, which rose during Covid lockdowns as consumers ramped up electronics purchases to work from home.
The industry is now recovering from a chip shortage caused by the spike in demand, but many makers are fighting to balance between their inventories and current demand.
Dylan Patel, chief analyst at SemiAnalysis, also told the BBC: “Samsung faces a double whammy of DRAM and NAND (memory chips) losing money and needing to update the process technology their (factories) use due to falling behind over the last couple of years.”
