Samsung Electronics is anticipated to narrow its chip deficit in the third quarter due to continued cuts in chip production. This reduction in chip output is helping address a persistent supply glut in the industry. Analysts expect Samsung's Device Solutions (DS) division, responsible for its chip business, to report losses of approximately 4 trillion won ($2.96 billion) in the third quarter, which is lower than the 4.35 trillion won loss recorded in the second quarter.
Samsung began cutting chip production earlier this year, following the lead of peers like SK hynix Inc. and Micron Technology Inc., which started reducing production late last year to address the oversupply issue. The company has intensified its production cuts, with a 30 per cent reduction for DRAM and a 40 per cent reduction for NAND Flash in the second half, up from 20 per cent and 30 per cent in the first half.
While these production cuts have started to improve memory chip prices, profits have been affected by elevated fixed costs to maintain idle manufacturing facilities. Samsung's DS division recorded an operating loss of 4.6 trillion won in the first quarter, its first financial loss in 14 years.
However, analysts believe that Samsung's production cuts are beginning to have a positive impact on chip prices, and the company's move to reduce NAND Flash production by 50 per cent is expected to stabilize chip prices and boost demand in the coming months.
Despite the production cuts, some analysts believe that Samsung's chip performance may still fall short of market expectations. Factors such as increased depreciation costs due to the expansion of a new chip production line could continue to affect profits.
In summary, Samsung's efforts to reduce chip production are expected to contribute to narrowing its chip deficit in the third quarter, potentially leading to improved chip prices and demand, although the impact may vary based on factors such as production costs and market dynamics.
Inputs from IANS