Samsung defies chip price slump, vows to continue investment

Despite witnessing a sharp drop in chip profits, Samsung Electronics said it will not scale back its output and spending in 2023, bucking the trend of cost-cutting among its global rivals.

"The deteriorated business environment is not so favorable for our performance for now, but we believe it is also an opportunity where we can thoroughly prepare for the future," the company said Tuesday in the earnings call for the fourth quarter of 2022.

The company added that its capital expenditures for this year would be similar to that of last year.

Facing major headwinds from weakening global demand for chip and mobile gadgets, the world’s largest memory chip and mobile phone maker reported a sharp drop in its operating profit in 2022 to 43.3 trillion won ($351.7 billion), down by 16 percent on-year, despite record sales.

In its regulatory filing earlier in the day, the company reported a record high of 302.2 trillion won in annual revenue -- the first time it surpassed the 300 trillion mark. Net profit posted at 55.6 trillion won, up 39.4 percent on-year.

However, its sales for the October-December period was 70.4 trillion won, down 8.2 percent when compared to the previous quarter. Operating profit plunged by almost 69 percent on-year to reach 4.31 trillion won.

Over Samsung's decision to maintain investment, experts view the tech giant as either very confident of demand recovering in the second half of this year, or taking different approaches to "implicitly" reduce production.

"As it claims, Samsung may have made the decision because it is optimistic the demand will recover in the second half of this year. The other companies that have chosen to cut output appear to have thought differently," Lee Jong-hwan, system semiconductor engineering professor at Sangmyung University, told The Korea Herald.

"Or the company may not be telling everything. Cutting down output is never good for the company's reputation. So they may take other approaches, such as equipment replacement, to delay production."

Park Jae-gun, an electronics engineering professor at Hanyang University in Seoul, said the company's investment will support its production for future demands.

"In times of downturn, it is only natural for the company to adjust wafer input. But the company appears to be preparing in advance to meet future demands, as they would need new facilities and equipment to produce the latest DDR5 chips," Park told The Korea Herald.

Samsung's semiconductor division, which accounts for some 60 to 70 percent of the company's total operating profit, saw a shocking decrease in the fourth quarter. Its sales recorded 20 trillion won and operating profit 270 billion won, a nosedive of 96.9 percent from the previous quarter's 8.84 trillion won.

Samsung said weak demand for memory chips amid the global economic slowdown was to blame for the sharp drop in fourth-quarter operating profits.

“Earnings in the memory business decreased sharply as prices fell and customers continued to adjust inventory,” the company said in its report.

“The System LSI business also saw a decline in earnings as sales of key products were weighed down by inventory adjustments in the industry.” The System LSI division designs core semiconductors and chipsets.

For 2023, the company predicted that demand would recover in the second half of the year, though macroeconomic uncertainties are expected to persist.

"Customers are likely to maintain inventory adjustments in the short term, but fundamental demand for servers based on investments in core infrastructure, such as for artificial intelligence and machine learning should remain solid," Kim Jae-jun, executive vice president in charge of memory marketing strategy said in the fourth quarter earnings call on Tuesday.

"Recovery is expected on mobile demand in the second half of this year, with the high-density trend. We will actively address DDR5 demand expected with the rising adoption of new CPUs, while responding to growing demand centered on high-density servers and mobile products via product-mix optimization," he added.

Samsung set a new record for its foundry business in the fourth quarter. Profits increased on-year as it expanded its advanced node capacity, along with diversification of its customer base and application areas.