Samsung cuts capex, calls end to chip boom after record Q3
SEOUL (Reuters) – Samsung Electronics Co. Ltd. slashed 2018 capex by more than a quarter yesterday and warned of lower profit until early next year, calling an end to a twoyear boom in memory chips that fueled record third-quarter profit.
The downbeat forecast by the world’s biggest maker of memory chips and smartphones adds to investor jitters over waning global demand for mobile and other electronics devices that roiled world stock markets this month.
The South Korean technology giant said it expected a quarter-on-quarter earnings decline in the fourth quarter due to weak demand for memory chips and higher smartphone marketing spend during the year-end holiday season.
“Looking further ahead to 2019, earnings are forecast to be weak for the first quarter due to seasonality, but then strengthen as business conditions, particularly in the memory market, improve,” Samsung said in a statement.
Analysts said the capex cut should ease concerns over further supply growth and price declines, as prices of some memory chips have already fallen to over two-year lows and rivals are set to start new production lines next year.
Samsung, one of the industry’s biggest buyers of chip-manufacturing tools, said its capital spending this year would drop by 27 percent to 31.8 trillion won ($28 billion) from a record 43.4 trillion won last year.
“NAND (flash memory) chip prices will further decline through the first half of next year ... (as) Toshiba’s new production line will start and Hynix starts mass production of one of its NAND lines,” said Song Myung-sup, an analyst at HI Investment & Securities.
Samsung, however, sought to assuage investor concerns of a steep downturn in the chip market, citing solid demand from servers as cloud-based data services grow fast.
A Samsung executive said the company believed it was at the “start of a virtuous up-cycle” in chip sales to the server industry.
“Temporary price changes can repeat but fundamentally we have a very strong demand base for memory,” Chun Sewon, senior vice president of Samsung’s memory marketing, told analysts.
Samsung also said it was considering converting some of its NAND production lines to make DRAM chips next year, rather than add capacity amid a glut of NAND flash chips.
Samsung, however, sought to assuage investor concerns of a steep downturn in the chip market, citing solid demand from servers as cloud-based data services grow fast.
A Samsung executive said the company believed it was at the “start of a virtuous up-cycle” in chip sales to the server industry.
“Temporary price changes can repeat but fundamentally we have a very strong demand base for memory,” Chun Sewon, senior vice president of Samsung’s memory marketing, told analysts.