Samsung plans output while awaiting second-half recovery

Samsung Electronics Co. pledged to curtail memory chip production while projecting a rebound in electronics demand during the second half, reinforcing expectations that global tech spending is beginning to climb out of a post-Covid funk.

Samsung, which on Thursday reported better-than-expected net income, said it expected AI-driven demand to kick in before the year-end and that it expects gradual recovery in memory demand in the second-half. Korea’s largest company plans to double its capacity to make high-bandwidth memory (HBM), a next-generation technique said to work better with chips for training AI, by 2024.

But the company said it would continue to cut memory chip output this year, especially of its NAND chips, a type of memory used for storage in smartphones and computers, even while saying that overall memory inventory seems to have peaked in May. It also said it wouldn’t provide a bit shipment guidance for the full year, citing macroeconomic uncertainties.

Samsung’s shares rose more than 2 per cent during Thursday morning trade in Seoul. Smaller rival SK Hynix Inc. shares jumped as much as 9.1 per cent.

The company, a bellwether for the industry because of its leading position in chips, electronics and smartphones, said its net income fell 86 per cent to 1.55 trillion won ($1.2 billion) in the quarter ended in June. That still beat an average estimate of 925 billion won, thanks to a lift from a weak won. Earlier this month, Samsung had reported its worst decline in quarterly revenue in more than a decade.

SK Hynix, which already supplies high-bandwidth memory (HBM) to Nvidia Corp., will likely be the bigger beneficiary of any demand for chips to help develop and train generative AI platforms such as OpenAI’s ChatGPT, analysts said. On Wednesday, SK Hynix reported sales ahead of estimates and declared that AI will soon ignite the long-awaited rebound.

“SK Hynix results yesterday left no room for doubt as to who is the leader in this space,” CLSA Securities Korea analyst Sanjeev Rana said.

Samsung is now trying to catch up and ride the AI wave. Of its entire quarterly capex of 14.5 trillion won, more than 90 per cent was spent on chips, it said.

Investors are looking to the tech industry’s largest companies for hints on when demand for electronics and semiconductors will bounce back “- a challenging task given the uneven global outlook, soaring inflation and China’s post-Covid turbulence.

In particular, Samsung is a barometer for a $160 billion memory industry that built capacity too rapidly during better times and is now grappling with bulging inventories. Its output cuts represent a significant step for a company that in the past continued production through industry downturns.

Samsung’s results come after Taiwan Semiconductor Manufacturing Co. cut its outlook last week and postponed production at its Arizona project to 2025 “- a warning signal that underscores the extent of the uncertainty roiling the global chip arena.

Still, the cyclical industry has moved to shore up prices, helping prop up Samsung and its peers. Korea’s largest company has gained some 26 per cent this year, buoyed by the concerted effort to deplete inventories of chips and hope at surging AI demand will drive orders for HBM and top-line DDR5 chips.

“Samsung doesn’t seem to be seeing a big boost from the HBM,” compared with Hynix, said CW Chung, an analyst at Nomura. “Samsung’s results aren’t that great.”

Apart from semiconductors, Samsung’s smartphone business “- the world’s largest “- is fighting to entice customers. The Korean company now expects its smartphone shipments to rise in the current quarter, and average prices to rise.

Samsung introduced the fifth generation of its foldable smartphones on Wednesday, seeking to counter upcoming rival products from Apple Inc. It’s also studying a lower-cost option, seeking to win market share in the increasingly popular foldable phone category.