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Samsung Electronics 2Q deficit possible, earnings rebound only in second half of year to see impact of semiconductor production cuts

▲ It is analyzed that the possibility that Samsung Electronics will turn to a loss for the first time in 15 years in the entire business due to the decline of the semiconductor industry in the second quarter of 2023 has increased.

[비즈니스포스트] Following a 95% drop in operating profit in the first quarter, Samsung Electronics is likely to post an operating loss in the second quarter, turning a loss for the first time in 15 years.

Samsung Electronics, like SK Hynix and Micron, started to cut semiconductor production, but since it takes 3 to 6 months for the effect of supply reduction to occur, semiconductor prices are expected to fall further in the second quarter.

Samsung Electronics’ earnings are expected to rebound from the second half of the year when the impact of production cuts begins in earnest after clearing large amounts of semiconductor inventories in the second quarter.

According to the electrical and electronics industry on the 10th, the conditions of the semiconductor industry deteriorated in the second quarter of this year more than in the first quarter, and the expectation is that Samsung Electronics will turn from its overall performance to an operating loss is gaining momentum.

TrendForce, a market research organization in Taiwan, predicted that DRAM prices in the second quarter would fall by 13-18% more than in the first quarter. This is a bigger drop in prices than the previous estimate of 10-15%.

TrendForce analyzed that “Memory semiconductor companies’ production cuts have not yet caught up with weakening demand,” and that “the high inventory level of DDR4 will lead to a drop in DRAM prices in the second quarter.”

Samsung Electronics’ DS (semiconductor) division had already suffered an operating loss of 4.58 trillion won in the first quarter due to sluggish demand for DRAM and falling prices. Samsung Electronics’ overall operating profit also suffered a fall, down 95% from last year’s first quarter, to 640.2 billion won.

In this situation, if DRAM prices fall by 18% in the second quarter, it is very likely that the entire business will actually suffer an operating loss. If Samsung Electronics turns red in the second quarter, it will be the first time in about 15 years since it posted an operating loss of 740 billion won in the fourth quarter of 2008.

Already, some securities companies such as Samsung Securities, SK Securities, and NH Investment & Securities predict that Samsung Electronics will make hundreds of billions of operating losses in the second quarter.

Do Hyun-woo, a researcher at NH Investment & Securities, predicted that Samsung Electronics would post an operating loss of 436 billion won in the second quarter, saying, “Samsung Electronics’ sluggish performance will continue until the second quarter.”

Samsung Electronics 2Q deficit possible, earnings rebound only in second half of year to see impact of semiconductor production cuts
▲ Samsung Electronics is expected to be able to cut DRAM production by up to 25% in 2023.

Even if Samsung Electronics makes an operating loss in the second quarter, it is expected to significantly reduce inventory and focus on the second half when the semiconductor industry recovers.

Samsung Electronics decided to cut semiconductor production in the first quarter of this year, but it will take at least three months for the effect to take effect. Therefore, semiconductor prices are expected to rebound in the third quarter at the earliest.

Although Samsung Electronics’ plan to reduce production is unknown, it is seen that production will be reduced by up to 25% compared to 2022. Given that Samsung Electronics’ memory semiconductor market share is over 45%, the supply could global semiconductors decreased significantly.

Competitors SK Hynix and Micron are also believed to be cutting production by up to 15% and 25%, respectively, this year.

Baek Gil-hyeon, a researcher at Yuanta Securities, said, “Three global DRAM companies have been actively cutting production since the first quarter.

It is analyzed that the effect of Samsung Electronics’ production cut policy will expand as time passes.

This is because the customer’s inventory is close to normalization and the absolute price is already missing, so the active production cut by the No. 1 memory semiconductor company brings a change in the buying psychology of customers. It is very likely that customers who have recognized that DRAM supply will decrease for the time being will start securing inventory again.

Production cuts also help maximize profits.

Excess inventory could dilute the profit-maximizing effect during the next semiconductor boom. This is because he can use a riser to deplete inventory.

However, by significantly depleting excess inventory in 2Q, Samsung Electronics can increase the scope of an earnings rebound in 3Q.

Koh Young-min, a researcher at Shinhan Investment & Securities, said, “Although Samsung Electronics did not mention specific figures related to production cuts, there is a need to pay attention to a clear policy direction rather than focusing on specific numbers.” Reporter Byunghyun No

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