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Samsung‘s semiconductor division has had a horrible past few months. It posted its first-ever quarterly loss in 14 years in Q1 2023. The company’s foundry unit also lost some clients to rival TSMC due to poor yield rates. However, the Korean behemoth is determined to turn things around. And it plans to do that with continued R&D investments. At the same time, Samsung is also planning to cut the production of memory chips by about 25 percent.
In a recent interview, Samsung co-CEO Kyung Kye-hyun said that the company will stick to its planned capital expenditure in the research and development of next-gen semiconductors. The idea is to be ready to pounce when the market rebounds in the future.
The firm will raise wafer input to “gain the upper hand in technology for future products,” Kyung said during a recent staff business session. He leads the Device Solutions Division overseeing global memory operations at System LSI, which is Samsung’s semiconductor business unit.
According to The Korea Herald, Samsung invested a record KRW 6.58 trillion (roughly $4.9 billion) in research and development in the first quarter of 2023. Additionally, it also spent a record KRW 10.7 trillion (roughly $8 billion) on equipment and facility during the same period.
The total investment of KRW 17.28 trillion is about 27 times the company’s operating profit of KRW 640 billion (roughly $478 million) in Q1 2023. Samsung reportedly plans to invest a whopping $230 billion in the semiconductor business over the next 20 years. It is even ready to borrow money if needed but won’t scale back investment, unlike some other firms.
Samsung will scale back memory chips production
Samsung’s poor financial results in Q1 2023 were largely due to a steep decline in the prices of memory chips. The company is the world’s largest vendor of memory chips by a huge margin. A large amount of its profits came from the memory business in the past years. A price drop in recent months led to its profit dropping a staggering 96% this past quarter. It is also seemingly left with a huge inventory pile-up.
In its earnings report, Samsung hinted at a production cut of memory chips going forward. Industry analysts are suggesting that the company will reduce production by about 25 percent in the first half of this year. It could cut the production of both NAND flash and DRAM chips. Low-cost solutions like such as DDR3 and DDR4 could see a bigger cut, with Samsung focusing more resources on advanced memory chips like DDR5.
According to the latest industry data, the average contract price of 8GB DDR4 DRAM was $1.45 last Friday. That’s down almost 20 percent from a month earlier (via). The market saw a similar decline in January 2023 as well. Worst yet, research firms are estimating a continued decline in prices in the coming months.
“We achieved the biggest monthly sale for DRAM and NAND flash, but their price fell too much,” Kyung told the staff. “To deal with the drastic deterioration of the performance, we will take active measures,” he added, seemingly referring to inventory adjustments. But the Samsung executive is wary that the road ahead is equally tough.
“The [country’s] economic growth rate is expected to continue to go down. While we may not be able to avoid falling into deficit, we can still reduce it, and that is up to what we do in the remaining seven, eight months [of the year],” he said.
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