Samsung memory chip foundry set to lose $3.04 billion in Q1 2023

Why this is important: Samsung’s memory chip business is off to a rough start this year after a terrible Q4 2022. The division will show an operating profit loss for the first time in 15 years. What hurts the most is that it was Samsung’s most profitable arm until the end of last year.

Samsung’s memory chip division lost $2.3 billion US in the first two months of 2023. Insiders told news outlet Korea JoongAng Daily that losses for the entire quarter are likely to be larger. An internal report estimates that the company could hit up to $3.04 billion for Q1 2023.

“Internally, there is a report projecting up to 4 trillion won in operating losses from the memory chip business in the first quarter,” one of the sources said.

The decline is remarkable, as Samsung’s memory chip maker hasn’t reported a loss since Q4 2008. Worse, the rest of its semiconductor arm, which has been profitable, is unlikely to recover the losses. Overall, Samsung expects its Device Solution (DS) business, which includes all silicon businesses, to lose at least 2 trillion won ($1.52 billion US) in Q1 2023.

This is a tough pill for the company to swallow as the DS division was Samsung’s most profitable branch until the end of last year. It dwarfs all other arms by a longshot, bringing $21.6 billion to the company’s $33.1 billion in total operating income by 2022. And that’s despite the division’s poor fourth quarter, which dropped by 97 percent from 2021 to 270 billion won ($205 million US) . Tanking is mostly attributed to NAND and DRAM prices falling.

On March 2, 2023, contract prices for 8GB of DDR4 DRAM fell to $1.83 – 75 percent lower than four years ago. TrendForce predicts that DRAM prices will fall about 20 percent in Q1 2023 and another 11 percent in Q2. This is a sharp decline considering that DRAM fell by 34 percent in the second half of 2022. Likewise, analysts expect NAND prices to continue falling, having fallen 10 percent in the first quarter and 3 percent of the second.

It got so bad that Samsung’s DS division borrowed 20 trillion won from Samsung Display to cover semiconductor investments.

“The move is inevitable given that cash cow DS division is expected to suffer a loss for the first time in 15 years, and overseas subsidiaries hold most of the company’s cash reserves, ” KB Securities analyst Jeff Kim told Korea JoongAng Daily.

The good news is that the company will remain in the black thanks to its large market share in the smartphone and appliances sector, which continues to generate healthy profits. Kim said Samsung will not reduce capital expenditures this year and will not have to resort to “artificial” semiconductor production cuts.

Image credit: Business Wire

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