Samsung Device Solutions (DS), the division responsible for its profitable chip manufacturing business, reported a loss in the first quarter of this year, its first red quarter since 2009. Unfortunately, the rest of the year doesn’t look good in any case, so Samsung is cutting production targets.
Operating loss in the first quarter was KRW 4.6 trillion, which was narrowed to KRW 4.36 trillion in the second quarter. The loss for the third quarter will be around KRW 4 trillion ($2.95 billion), forecasts analyst Kim Dong-won of KB Securities.
Other analysts expect smaller losses for the third quarter: KRW 3.7 trillion, according to Kim Kwang-jin of Hanwha Investment & Securities, and KRW 3.6 trillion, according to Greg Roh of Hyundai Motor Securities.
In the first half of the year, Samsung reduced production of DRAM chips by 20% and NAND flash chips by 30%. In the second half of the year the cuts will increase to 30% and 40% respectively, explains Kim Dong-won.
Samsung DS is setting up a new chip production line in Pyeongtaek
The problem is low demand for chips: Samsung’s rivals SK Hynix and Micron Technology have already reduced production last year. There is still an oversupply of chips and it will take some time for supply and demand to balance.
The memory business run by the DS division is described as Samsung’s “cash cow”. In the second quarter of this year, it brought in KRW 14.73 trillion out of total KRW 60.01 trillion in revenue. Looking back at the second quarter of last year, the division brought in KRW 28.5 trillion of total KRW 77.2 trillion in revenue and posted an operating profit of KRW 9.98 trillion.
Samsung Device Solutions is currently working to put a new production line into operation at its Pyeongtaek campus, which is another reason for the current losses in addition to the collapse in demand.
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