Samsung foresees end of punishing memory chip slump in 2024

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Samsung Electronics expects the memory chip market to rebound next year, drawing a year-long supply glut to an end, after introducing production cuts to get through an industry downturn.

The world’s largest producer of memory chips and smartphones forecast semiconductor prices would rise in the fourth quarter, with inventories getting quickly depleted. Samsung also said artificial intelligence applications would drive significant demand for high-end chips.

“In 2024, while macroeconomic uncertainties are likely to persist, memory market conditions are expected to recover,” the South Korean company said on Tuesday.

The upbeat outlook comes after the technology giant reported a 38 per cent drop in third-quarter net profit from a year earlier to Won5.8tn ($4.3bn), much higher than analyst estimates of Won2.5tn compiled by Bloomberg.

Spot prices of Dram chips used in smartphones, computers and servers have fallen this year, forcing the chipmaking division to suffer an operating loss of Won3.8tn in the July-September quarter. But it narrowed from a Won4.4tn loss in the previous quarter as Dram prices began to rebound in early September.

Intel forecast sales to grow in the fourth quarter on improved personal computer demand. Last week, rival SK Hynix said Dram demand was being driven by an AI boom and that the impact of memory chip production cuts were beginning to take hold.

Samsung slashed more output in the third quarter to reduce inventory after first announcing an output cut in April, joining rivals such as SK Hynix and Micron Technology as the industry suffered from a downturn.

“Samsung has expanded its output reduction since August, shifting its strategy to boost profitability,” said Kim Dong-won, an analyst at KB Securities, in a recent report, forecasting Samsung would raise Dram and Nand chip prices further in the fourth quarter.

Samsung plans to spend a record Won53.7tn in capital expenditure this year, with Won47.5tn of that going to semiconductors. Shares of Samsung have gained more than 20 per cent year to date on growing expectations of an industry recovery.

Samsung is trying to boost margins by focusing on higher-end Dram chips such as DDR5 and so-called high bandwidth memory chips, which are crucial components in AI systems including OpenAI’s ChatGPT.

Demand for HBM chips used in AI processors remains strong, but Samsung’s technology is behind that of domestic rival SK Hynix, analysts said. The company plans to double production of HBM chips next year to regain lost ground.

Samsung has also been able to continue its operations in China, after Washington recently allowed the company to bring in new chipmaking equipment to its factory in the country without seeking US approval.

Washington extended a wavier granted to Samsung and SK Hynix indefinitely by including them in its “validated end user” list.

Losses at Samsung’s chip division were partly offset by booming sales of the company’s latest foldable phones, launched in August, despite the sluggish global smartphone market.

Samsung reported a Won3.3tn operating profit for its mobile business. Its display business is also improving in the current quarter, helped by demand from Apple, which launched its latest iPhone last month.