Chip prices fell precipitously in the first quarter as a result of a global decline in semiconductor sales brought on by a slowing economy and corporate cost-cutting, leading to output reductions throughout the whole industry.
Customers will have depleted their stock by the second half of the year and will gradually begin repurchasing chips, according to Samsung.
The second quarter is when we anticipate inventory levels to begin to decline, according to Jaejune Kim, executive vice president of Samsung's memory division.
Samsung predicted a limited memory chip rebound for the current quarter as large data centre companies made more cautious server investments.
The largest memory chip manufacturer in the world said that operational profit for the January-March quarter plummeted to 640 billion won ($478.6 million), a 95% decrease from the same period last year and its lowest profit in 14 years.
The semiconductor sector of the South Korean IT giant reported a 4.58 trillion won ($3.41 billion) loss as opposed to an 8.45 trillion won profit a year earlier. This segment is often its most stable source of revenue.
Globally, consumers have reduced their spending owing to rising prices. As a result of running out of inventory, manufacturers of servers, smartphones, and personal computers have seen a 70% decrease in chip costs during the preceding nine months.
Earlier this month, Samsung announced an unusual reduction in chip manufacturing, joining smaller rivals like SK Hynix Inc (000660.KS).
However, without a fundamental improvement in demand for chip-using devices, experts predicted that Samsung's earnings in the current quarter may be comparable to that of the first quarter.
"Samsung said its production will be flexible in the second half, which means it could engage in more cuts to manage inventory," said Lee Min-hee, analyst at BNK Investment & Securities. "In addition to production cuts in the current quarter, Samsung said its production will be flexible in the second half."
Buy Chips Again
Samsung said that capital expenditures in the first quarter were 10.7 trillion won, the largest for any first quarter of the year, despite the record loss in chip sales.
Out of that, Samsung spent 9.8 trillion won on semiconductors as it built up manufacturing at its facilities in Pyeongtaek, South Korea, and Taylor, Texas.
In order to secure factory space, Samsung stated that it aimed to maintain this year's expenditure in memory chips at a comparable level to 2022.
The growth of electric cars, artificial intelligence, and high-performance computers, it claimed, will increase demand for chips, maintaining its optimistic long-term view.
A bright light for Samsung was its mobile division, which reported a first-quarter earnings of 3.94 trillion won, up from 3.82 trillion won a year earlier.
According to Jene Park, senior analyst at Counterpoint, "Samsung is focusing on profit rather than shipments" as it satisfies more durable demand for luxury smartphones.
Samsung anticipated that both shipments and income from the smartphone industry will rise in the second half.
Following the results teleconference, Samsung's stock increased 0.3%, erasing an earlier decline. Investors are betting on a turnaround in memory chip sales in the second half, which has helped the stock gain roughly 16% so far this year.