Why it matters: Samsung's memory chip business is off to a rough start this year following 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 late 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 will likely be more considerable. An internal report estimated the company could take a hit as high as $3.04 billion for Q1 2023.
"Internally, there was 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 downturn is notable, considering Samsung's memory chip foundry has not reported a loss since Q4 2008. Worse yet, the rest of its semiconductor arm, which is turning a profit, likely won't offset the losses. Overall, Samsung expects its Device Solution (DS) business, encompassing all of its silicon ventures, to lose at least 2 trillion won ($1.52 billion US) in Q1 2023.
It's a hard pill for the company to swallow since the DS division was Samsung's most profitable branch until late last year. It dwarfed all other arms by a longshot, bringing in $21.6 billion of the company's $33.1 billion in total operating profit in 2022. And that was despite the division's dismal fourth quarter, which plunged 97 percent from 2021 to 270 billion won ($205 million US). The tanking was mostly attributed to NAND and DRAM prices plummeting.
As of March 2, 2023, contract prices for 8GB of DDR4 DRAM were down to $1.83 — 75 percent lower than four years ago. TrendForce predicts DRAM prices will fall about 20 percent in Q1 2023 and another 11 percent in Q2. It's a steep decline considering DRAM dropped 34 percent in the second half of 2022. Likewise, analysts expect NAND prices to continue to tumble, falling 10 percent in the first quarter and 3 percent in the second.
It has gotten so bad that Samsung's DS division borrowed 20 trillion won from Samsung Display to cover semiconductor investments.
"The move was inevitable given that its cash cow DS division is expected to suffer a loss for the first time in 15 years, and overseas subsidiaries have 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 shares in the smartphone and appliances sectors, which continue to turn healthy profits. Kim said that Samsung will not reduce its capital expenditures this year and should not have to resort to "artificially" cutting back semiconductor production.
Image credit: Business Wire
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