Signals are growing that Samsung Electronics is bracing for an industry-wide downcycle in chipmaking, which accounts for nearly 40 percent of its entire sales.

Reports suggest that the electronics giant is seeking to slash jobs at its global outposts, while brokerages are casting pessimistic outlooks on the company’s third-quarter earnings, stoking fears that Samsung is facing a crisis.

Bloomberg reported on Wednesday that Samsung is set to slash thousands of jobs in Southeast Asia, Australia and New Zealand, which may affect 10 percent of its workforce in those regions.

The report also noted that Samsung has already cut 10 percent of its workforce in India and some regions in South America, adding that additional job cuts are planned for Samsung’s overseas subsidiaries, with the reduction possibly reaching up to 10 percent in some markets.

Last month, Reuters also reported that Samsung plans to reduce sales and marketing staff by about 15 percent and administrative staff by up to 30 percent.

Regarding the reports, an official at Samsung Electronics said, “Some of Samsung’s overseas subsidiaries are conducting routine workforce adjustments to improve operational efficiency,” and added, “The company has not set any specific targets for particular positions.”

Despite Samsung’s explanations of “workforce adjustments,” market watchers interpret the reports as signs showing that Samsung is bracing for a downturn, just three months after it announced a 10.44 trillion won operating profit for the second quarter of this year, which was 15 times higher compared to a year earlier.

Samsung Electronics’ stock price is already on a downward trajectory, slipping from 80,200 won on Aug. 16 to 61,500 won on Sept. 30. The company closed at 61,300 won on Wednesday, down 0.33 percent from the previous session, but fell below 60,000 won briefly during the trading session, marking the first case of dipping below the threshold since March 16 last year.

The downtrend was amplified after a Sept. 15 report by Morgan Stanley which cast a pessimistic view that the general DRAM market has already peaked and AI-specific high-bandwidth memory (HBM) will be oversupplied.

Following the report, brokerages in Korea also lowered their price targets for Samsung Electronics, though they cast mixed views on the outlook of the demand for DRAM and HBM chips.

Dealing an additional blow, Macquarie also halved its price target for Samsung from 125,000 won to 64,000 won in its latest report, citing that the weakened average selling prices of memory chips stemming from the declining demand for IT devices will likely result in disappointing numbers for the company’s earnings.

Samsung's HBM operation is also becoming a matter of concern. While its main rival SK hynix is consolidating its leadership as the main supplier of advanced HBM chips for AI processor maker Nvidia, Samsung’s advanced HBM chips have yet to pass Nvidia’s tests.

Against this backdrop, SK hynix announced last month that it has begun mass production of 12-layer HBM3E chips, which will be the mainstream HBM for next year. In February, Samsung said it had developed the industry's first 12-layer HBM3E, but SK hynix began mass production before Samsung.

Along with memory chips, the company’s foundry business is accumulating losses, while its smartphone business is also staging a neck-and-neck race against Apple to keep its world-leading position.

“Concerns are growing on the companies’ third-quarter earnings due to the weaker-than-expected demand for smartphones and legacy memory chips, which are coupled with widening losses in its non-memory business and belated entry into the HBM market,” Shinhan Securities analyst Kim Hyung-tae said.

“The impact from currency and one-off costs are also damaging the company’s profitability and lowering the expectations for the third-quarter earnings.”

Samsung Electronics plans to announce its third-quarter earnings guidance next Tuesday, and is expected to release detailed numbers at the end of this month.

By: DocMemory
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