Samsung bucks industry trend, maintains memory investments

This is despite weakening demand and operating profit down by 49% in semiconductor division

While other memory chipmakers have slashed investment in production capacity, Samsung plans to forge ahead on the expectation that the fall off in demand will rebound next year, especially in the datacenter.

This is despite the Korean semiconductor giant revealing in its financial results for the third calendar quarter of 2022, filed today, that revenues and earnings for its memory biz had declined, citing customer inventory adjustments and weakening demand for consumer products.

The Device Solutions Division (semiconductor nodes, memory and integrated circuit chip) reported a 14 percent decline in revenue to ₩23.02 trillion ($16.14 billion) and operating profit fell 49 percent to ₩5.12 trillion ($350 million).

Group revenue hit a record ₩76.78 trillion ($54 billion), up 4 percent year-on-year, but Samsung's total operating profit declined 23 percent when compared with the previous quarter to ₩10.85 trillion ($7.63 billion). This was slightly better than the company had forecast in its earnings guidance earlier this month but below consensus analyst estimates.

For the fourth quarter, inventory adjustments are likely to continue in the memory market, but Samsung still expects to see demand in the server market, based on continued infrastructure investments. To meet this, Samsung said it aims to deliver bit growth in Q4 that exceeds the market for both DRAM and NAND, focusing on high-density and high-performance products.

Samsung's full capital expenditure for 2022 is now expected to be ₩54 trillion, which includes ₩47.7 trillion ($33.5 billion) allocated to the Device Solutions Division, an increase of about 9 percent over last year.

Looking to 2023, Samsung said that demand is expected to recover to some extent, and thus the Device Solutions Division plans to actively address demand for high-density products and expand its advanced production nodes.

The company said that while economic uncertainties are likely to dampen demand to some degree in the first half of the year, it expects things to recover later in the year. This will be driven by resumed installations at datacenters and the adoption of DDR5 for new CPUs.

This prediction matches what US memory manufacturer Micron said earlier this month, when it forecast a "bit demand rebound" for the second half of its fiscal 2023. However, Micron is cutting capital investment in production for next year by more than 30 percent to about $8 billion.

TSMC is also cutting back on investment, detailing earlier this month that it expects expenditure to max out at about $36 billion by the end of the year, while it had previously intended to spend at least $40 billion.

This week, fellow Korean memory chipmaker SK hynix announced during its Q3 results that it will cut investment by over half next year, while production volumes of less profitable products will also be reduced.

Kioxia, formerly Toshiba Memory, is also lowering capital investment and production output in response to market conditions.

The consensus among the memory chipmakers is that this drop-off in demand is just part of the market cycle, and that they will be able to ramp up production and investment once it picks up. How soon this will come is a different matter, with Samsung and Micron expecting an uptick next year, but some analysts believe it will take longer.

Earlier this month, Gartner's vice president for semiconductors and electronics Richard Gordon told us that total 2023 semiconductor growth is likely to be negative.

"We are already seeing pull-backs in announced Capex as semi companies (especially memory) try to throttle back output," he said. "This will slow the addition of new fab capacity as vendors try to align it to a recovery in the market in beginning in 2024 and accelerating in 2025." ®