Samsung expects gradual global chip demand rebound in H2

Samsung Electronics flagged on Thursday a gradual global chip demand recovery after an ongoing glut led to continued losses in the technology giant’s key business in the June quarter, despite a production cut.

Chip clients are expected to move from using up inventory to buying semiconductors again, the South Korean company added, a day after rival SK Hynix also pointed to a nascent market recovery amid robust artificial intelligence demand.

Samsung reported a 95% plunge in June quarter profit, as the chip industry’s downturn persisted despite output cuts because of weaker demand for products reliant on semiconductors from consumer gadgets to servers.

Operating profit fell to 669 billion won ($527 million) in April-June, from 14.1 trillion won a year earlier.

That was broadly in line with the company’s estimate of 600 billion won this month, and was the second-lowest quarterly profit in 14 years.

Revenue fell 22% to 60 trillion won.

Its chip division reported a 4.36 trillion won loss during the quarter, a continued divergence for what is normally Samsung’s most important cash cow. It had reported a 9.98 trillion won profit a year earlier.

Chip losses shrank slightly from the first quarter’s 4.58 trillion won due to strong memory chip demand from AI, which led to higher-than-expected shipments of DRAM chips that hold information from applications while the system is in use.

Samsung’s chip contract manufacturing business fared worse, experiencing a “significant” profit decline in the June quarter due to uncertainties in short-term demand, it said.

Taiwan’s TSMC, the world’s largest contract chipmaker, lowered its annual sales guidance this month and warned of cost challenges as it battles weak global demand.

Samsung shares were down 0.7% in early trade, versus a 0.6% rise in the wider market after the chip division losses exceeded market estimates.

The company said it spent 14.5 trillion won in capital expenditures during the second quarter, of which 13.5 trillion won was spent on chips.

It is expected to begin shipping advanced 4-nanometre chips from its Taylor, Texas factory in late 2024, according to CEO Kyung Kye-hyun, while it is also setting up more production in Pyeongtaek, South Korea.

Samsung’s mobile business reported a 3.04 trillion won profit in the June quarter, up from 2.62 trillion won a year earlier. It forecast the overall smartphone market would return to year-on-year growth in the second half, especially at the premium end.