Samsung recently announced that they plan to cut chip production. They experienced one of the worst quarters, with a 96% dip in their operating profit. While last quarter they were at 14.12 trillion won, in the Jan-Mar quarter, they merely managed 600 billion won. This was their worst quarter in the last 14 years.
What led to this?
Chip production canceled amidst semiconductor troubles
There are already growing concerns in the technology manufacturing industry as Japan holds off on exporting semiconductors. As a shortage develops, tech companies adapt their manufacturing process in an attempt to prevent losses.
But cutting chip production was also a response to changing consumer buying habits. As economic situations worsen in most countries across the globe, people are focusing more on saving and redirecting their investments. The demand for memory chips has thus decreased. Samsung must have run the calculations and found that it was simply better to stop production altogether than to reduce quantities.
Although they previously estimated they would make minor changes to the production line, it seems Samsung had to pin the idea and cancel it altogether.
The figures on the production cut are yet to be revealed. It is likely to have an effect on the size of their workforce as the production of an electronic part halts to an end. As the demand fell, so did the market prices for memory chips. At that low price, Samsung probably did not see a profit-generating way to sustain production.
The South Korean tech giant is only responding to the macroeconomic changes in the tech market and is stopping its oversupply. Samsung is not the only one to take such measures. Its competitors Micron, Kioxia, and SK Hynix also cut their memory chip production.
The Future of the Tech Market
While they expected to make 1.4 trillion won in the first quarter of 2023, the upcoming economic crisis could not have made that possible. Amidst the digital era, when technology is the cause and consequence of most corporate and economic actions, such a cut reflects a grave problem. The slump in demand is concerning and only speculations can be made as of yet. Samsung is to release its full financial statement at the end of April, which will shed more light on the actual effect of this cut.
However, it is not necessarily a bleak future. As companies run out of their inventories, the demand for memory chips is likely to rise again in the second half of the year. Slashing the production of one part does not mean the company is not doing well. Samsung still plans on investing in research and infrastructure, so resources are simply being reallocated to make profits as efficient as possible.
As one of the leading technology conglomerates across the world for the last 85 years, Samsung is sure to continue to dominate the market. The market awaits eagerly for its financial statement to learn more about how the multinational giant is handling these rough times.