A cleanroom in a Samsung Electronics semiconductor production facility in Suwon, Gyeonggi Province. (image: Samsung Electronics)
SEOUL, April 4 (Korea Bizwire) — Ahead of the announcement of preliminary first-quarter earnings results scheduled to be released on Friday, Samsung Electronics Co. is under close watch to see whether its stance on production cutbacks will change.
Previously, the world’s largest memory chip maker dismissed the possibility of artificial production cuts.
But there are conflicting views inside the company with those calling for production cuts in consideration of a deeper than expected market slump and current stock prices, while others are calling to maintain the existing stance to widen the gap with rivals for the company’s future, according to industry sources.
The problem, however, is that the market conditions are worse than in January when the global tech titan released its financial results for the fourth quarter of last year.
The market expects Samsung’s first quarter operating profits to range from 1 trillion (US$765 million) to 2 trillion won (US$1.53 billion).
Market expectations, however, continue to weaken over time.
“In a situation where Samsung’s DRAM output remains stable, its shipments continue to remain sluggish, possibly leading to an increase in first quarter inventories,” said Kim Rok-ho, an analyst at Hana Securities Co.
“It’s time for the company to think about taking a conservative stance in capacity operation policy.”
Even when demand is sluggish, the price of memory chips can go up if supply falls behind demand.
Accordingly, some expect Samsung to take one step further towards signaling production cuts.
However, others predict that given the market outlook and the company’s strategy so far, it’s unlikely for the company to revise its existing stance on production cuts.
“Even if Samsung decided to cut output, its existing DDR4 inventories would not decrease until demand recovers,” said Chae Min-sook, an analyst at Korea Investment & Securities Co.
“For DRAM, it would still have some room before reaching the cash cost point even in consideration of inventory appraisal loss.”
Kevin Lee (kevinlee@koreabizwire.com)
