uploads/2018/10/8-6.jpg

Why Samsung May Want to Cut Memory Production

By

Updated

Demand slowdown anticipated

Samsung (SSNLF) is contemplating lowering its memory chip production next year as a measure to manage supply and prices, those familiar with the matter have told Bloomberg.

Samsung is the world’s largest supplier of memory components used in smartphones, computers, and data centers. The company reportedly expects a slowdown in memory chip demand in 2019. As a result, Samsung is considering curbing its memory chip output to keep supply tight and possibly protect prices. A weak demand environment could lead to a price collapse as memory suppliers bid to gain more market share by wooing customers with lower prices. But such a development could destroy profit margins.

Article continues below advertisement

Most profitable business

Selling semiconductor components such as memory chips is Samsung’s most profitable business. Its chip division’s operating profit more than doubled to ~$31.4 billion in 2017, supported by strong memory chip prices.

Potential impact of Samsung action

Other memory chip makers SK Hynix, Micron (MU), and Toshiba (TOSBF) would benefit if Samsung helped keep memory chip prices stable. Micron’s revenue rose 37.5% YoY (year-over-year), and Toshiba’s revenue fell 26.4% YoY in their latest quarters.

But companies such as Applied Materials (AMAT) and Lam Research (LRCX), which supply equipment and materials used in chip production, may feel the heat due to reduced demand for their supplies as chip makers curb output. Applied Materials and Lam Research grew their revenues 19.3% and 33.3% YoY, respectively, in their latest quarters.

Advertisement

More From Market Realist