After projecting a 96% decline in its quarterly operating profit, Samsung Electronics will reduce the output of memory chips.

The world’s largest manufacturer of chips reported a steep decline in sales due to weak demand after Covid and a slowing global economy.

According to Samsung, early data indicates that operating profits decreased from 14 trillion won in January through March to 600 billion won (£366 million).

Despite the decision to delay chip production, the company’s shares increased by more than 4%.

“We are lowering the production of memory chips by a meaningful level, especially that of products with supply secured,” the South Korean tech giant said.

As people purchased new electronics for use at home during Covid-induced lockdowns, the demand for memory chips increased.

The chip crisis of recent years is finally over, but many semiconductor producers are still having trouble striking a balance between their inventory and current demand.

“When the overall economy slowed down, suddenly the demand for these end products slowed. So, the makers of these end products stopped ordering chips and focused on selling through the inventory they already had,” said analyst Peter Hanbury from management consultancy Bain & Company.

“This led to a strong ‘bullwhip’ effect for semiconductor makers further back in the supply chain, where sky-high demand during the chip shortage suddenly dried up”, he added.

Samsung, the largest producer of smartphones, tablets, and televisions worldwide, had fought the trend to reduce memory chip output in comparison to its rivals.

Analysts claim it is unusual for the corporation to declare a reduction in production. It revealed plans to spend 300 trillion won over 20 years to build a massive semiconductor hub in South Korea last month.

“Samsung faces a double whammy of DRAM and NAND [memory chips] losing money and needing to update the process technology their [factories] use due to falling behind over the last couple of years,” said Dylan Patel, chief analyst at SemiAnalysis.

Investors are hoping that Samsung’s statement is a harbinger of a semiconductor market rebound.

“We expect this inventory ‘digestion’ phase to complete its course over the next 3-6 months. At that point, the end markets will have worked through their inventory and returned to a more normal purchasing pattern,” said Peter Hanbury.

Later this month, the corporation is expected to reveal specific financial information.

(Adapted from BBC.com)