SEOUL, South Korea - Samsung Electronics announced Friday that it is cutting production of computer memory chips to cut inventory. The company also forecasted a second quarter of sluggish profits.
In a regulatory filing, the South Korean technology giant said that it had reduced production of certain memory chips by'meaningful' levels not specified to optimize its manufacturing processes. It added that it had sufficient supplies of these chips to meet fluctuations in demand.
The company forecast an operating profit for the three-month period ending in March of 600 billion won (455 million dollars), which is a 96% drop from the same time last year. It reported that sales for the third quarter were likely to have fallen 19%, or 63 trillion won (47.7 billion).
Samsung, which is due to release its first quarter earnings in the next few weeks, has said that demand for its memory chip products declined because a weaker global economy lowered consumer spending on tech products, and forced clients to reduce their inventories as their finances worsened.
Samsung reported a profit drop of nearly 70% for the October-December quarter. This was partly due to global events such as Russia's war in Ukraine and high inflation, which have shaken technology markets.
Samsung stated that despite reducing its short-term production plan, it expects a solid demand in the medium- and long-term. Therefore, they will continue to invest infrastructure to ensure essential clean room capacity levels and increase investment in R&D to strengthen their technology leadership.
Samsung announced last month that it would invest 300 trillion won (227 billion dollars) over the next twenty years in an ambitious South Korean plan to build the largest semiconductor manufacturing facility near the capital Seoul.
Samsung will build five new semiconductor factories near its existing manufacturing center to anchor the chip-making "mega cluster" that will be set up in Gyeonggi by 2042. According to the South Korean government, it will be a goal to attract 150 companies that produce materials and components or design high-tech chip designs.
South Korea's plan comes at a time when other technology giants such as the United States and Japan are building up their own domestic chip manufacturing. They use protectionist measures and tax cuts, along with substantial subsidies, to attract investments.