Samsung Electronics Co., the world’s biggest memory chipmaker, is said to be mulling cutting production this year amid a deepening slump in the industry.

Samsung Electronics, set to report its earnings for the first quarter next month, is considering future approaches to memory chip production, including an artificial cut, a measure already taken by Micron Technology Inc. and SK Hynix Inc., according to multiple industry sources.

Micron Technology said in the earnings call on Tuesday that its revenue for the quarter ended February plunged by 53 percent from a year earlier to $3.69 billion. During the period, the company lost a record $2.3 billion in operating loss because of the prolonged oversupply of DRAMs, which caused prices to fall by 20 percent in the quarter.

The U.S. company expected revenue for this quarter to be around $3.7 billion, down 60 percent compared with the previous year and the biggest drop since the slump in 2001. The company said that it will keep investments at about $7 billion, the lower end of an earlier figure, but increased its headcount reduction target to 15 percent from the initial 10 percent.

SK hynix is also suffering from harsh market conditions. The Korean chipmaker said at a shareholders’ meeting on Wednesday that it will cut its operating spending plans, the first annual cut for this year in a decade.

“We had made aggressive investments to grow production capacity fast in the past, but now we look to adjust production approaches in a more flexible way,” said Park Jung-ho, the company’s vice chairman. “We spent 19 trillion won ($14.6 billion) in capital expenditures last year but will cut them by more than half this year.”

Park described the ongoing slump in the DRAM chip industry as the famous prisoner‘s dilemma, indicating that cooperation among market players is in their best interests.

“No matter how many times we say not to follow the trend, clients continue their game like a prisoner’s dilemma. When in a downcycle, excess supply of chips ends up exacerbating the price decline,” Park said.

Korean brokerage houses expect Samsung Electronics’ Device Solution division and SK hynix to report around 4 trillion won in operating loss for the first quarter.

Global credit rating agency Moody’s Investors Service downgraded its credit outlook for SK hynix to negative from stable. The crediting rating for the Korean company was left unchanged at Baa2. Amid an unprecedented downturn in the global memory chip industry, SK Hynix could face bigger-than-expected debt this year, said Moody’s.

Market insiders are paying attention to whether Samsung Electronics sticks to its policy in production, ahead of its earnings call for the first quarter on April 7. The company‘s performance has been worse than ever, with a forecast that its DS division will log more than 10 trillion in annual operating loss this year.

However, Samsung Electronics indicated it had no plan for an artificial cut in production, which refers to a direct cutback by scaling down the input of wafers. The DS division is said to be considering cutbacks in production, including the artificial cut.

Samsung Electronics said in January that it sought a natural reduction in chip production. However, it cannot be ruled out that Samsung Electronics will stick to the policy, given that inventories can be exhausted even by a recovery in demand.

By: DocMemory
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