Tech giant Samsung Electronics made an important announcement. The company said on April 7 that it was cutting its chip production after reporting a worse-than-expected 96% plunge in quarterly operating profit due to a sharp downturn in the global semiconductor market.
However, Samsung didn’t disclose the size of the “meaningful level” cut. Samsung’s announcement is quite unusual, to say the least.
Interestingly, it is the first time the tech giant has made “cutting output” official. Samsung isn’t the only tech company that is struggling to cope with problems. Its rivals have already revised their plans in order to solve various issues.
Alongside the announcement about short-term chip production, the South Korean tech giant said it would continue to spend money on infrastructure in order to secure essential clean rooms. Moreover, it plans to spend more money on research and development to strengthen its technology leadership.
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Global semiconductor market
In its earnings guidance, Samsung predicted its January-March operating profit to be 600 billion won ($455 million). Analysts expected its operating profit to reach 1.1 trillion won in the quarter.
One year earlier, its operating profit was 14.12 trillion won.
For the first time in more than a decade, the company reported a quarterly operating income of less than 1 trillion won.
Interestingly, the company reported a quarterly operating income of less than 1 trillion won in the first quarter of 2009. Back then, the company’s profit was 590 billion won.
The situation in the semiconductor market is far from ideal. The demand for tech devices fell due to inflation. As a result, semiconductor buyers are trying not to spend a lot of money. It isn’t hard to understand their position.
According to the company’s 2022 annual report, its semiconductor division posted roughly 29.6 trillion won in inventory assets as of the fourth quarter, up 76.6% compared to the same period in the third quarter.
We need to note that the tech giant will release its finalized first-quarter earnings until the end of April.
SK Hynix is also trying to adapt to the new reality. Recently, SK Hynix sold $1.7 billion of bonds. It is possible to exchange the above-mentioned bonds into SK Hynix’s shares. A world-famous semiconductor producer sold bonds in order to raise money for materials.
SK Hynix reported an operating loss of 1.7 trillion won ($1.28 billion) for the October-December period.
Samsung and its plans
Let’s take a look at Samsung’s plans for the future.
The company made an interesting announcement in March. The South Korean tech giant announced plans to invest 300 trillion won ($227 billion). The company plans to invest a lot of money over the next 20 years as part of a national project to build the world’s largest semiconductor manufacturing base near the capital, Seoul.
The country plans to create a “mega cluster,” in Gyeonggi province by 2042. Samsung plans to build five new semiconductor plants near its existing manufacturing hub.