Samsung’s loses billions on chips as overall profits decline 95 percent

Samsung’s memory chip business just had a terrible quarter, as falling demand and high inventories contributed to a 4.58 trillion won (around $3.4 billion) loss from the division, Bloomberg reports. The loss at the unit, which CNBC reports is typically its largest profit driver, contributed to Samsung’s quarterly operating profit plunging 95 percent in the quarter to 640 billion won (roughly $478 million).

A few different factors contributed to Samsung’s losses at its memory chip division. Smartphone and PC makers stockpiled chips during the pandemic as a hedge against supply issues as demand boomed, but have since been left with large inventory excesses as consumer demand has dropped off amidst high inflation and broader global economic uncertainties. 

Samsung hopes that the chip business will start to pick up in the second half of this year. That’s when existing inventories are expected to have run down, and new smartphone and PC launches will spur demand. That’s tied to hopes of an economic recovery in China, which Bloomberg notes is the largest market for PCs and smartphones worldwide.

Samsung, one of the world’s largest supplier of memory chips, had warned of its rocky quarter in its preliminary earnings earlier this month. In response, it plans to cut memory chip production by a “meaningful” amount to help stem a roughly 70 percent fall in prices over the previous nine months. 

But the company doesn’t plan to cut memory chip investment in the same way. “We have cut short-term production plans, but as we project solid demand for the mid-to-long term, we will continue to invest in infrastructure to secure essential cleanrooms and to expand R&D investment to solidify tech leadership,” Bloomberg reports Samsung said in a statement. Investment levels in 2023 are expected to be broadly consistent with last year.

It wasn’t all bad news for the South Korean electronics giant. Profit at its smartphone division, which saw the launch of the Galaxy S23 lineup last quarter, rose 3 percent to 3.94 trillion won (around $2.9 billion) versus the previous year. Revenue, however, was down 2 percent to 30.74 trillion won (around $22.9 billion).