By Joyce Lee and Heekyong Yang

SEOUL (Reuters) – Samsung Electronics (OTC:) Co Ltd mentioned on Friday it might make a “significant” reduce to chip manufacturing, following the lead of smaller rivals, because it grapples with a pointy world downturn in semiconductor demand that has despatched costs plummeting.

The bizarre output reduce by the world’s largest reminiscence chipmaker – with no earlier announcement recalled by Samsung (KS:) officers and analysts – got here after it flagged a worse-than-expected 96% plunge in first-quarter revenue.

Traders disregarded the revenue miss, betting the transfer by the trade chief would assist chip costs that had fallen by about 70% during the last 9 months.

Samsung jumped 4.5% in early buying and selling within the largest one-day rise since September, whereas rival SK Hynix Inc’s shares surged 5.6%.

Smartphone and private pc makers had stocked up on chips through the pandemic when demand for client units surged, however they’re now working down inventories as buyers in the reduction of on purchases amid rising inflation.

Samsung mentioned reminiscence demand had dropped sharply due to a weak world financial system and prospects slowing purchases as they targeted on utilizing up their shares.

“We’re reducing the manufacturing of reminiscence chips by a significant degree, particularly that of merchandise with provide secured,” it added, in a reference to these with enough inventories.

Samsung didn’t disclose the dimensions of the deliberate manufacturing reduce, nevertheless it despatched a powerful sign for a corporation that had beforehand mentioned it might make small changes like pauses for refurbishing manufacturing strains however not a full-blown reduce.

“The truth that the No. 1 market share agency is becoming a member of manufacturing cuts lifted shares… SK Hynix and Micron (NASDAQ:) have declared manufacturing cuts, however solely Samsung had not, so the market was looking forward to it,” mentioned John Park, an analyst at Daishin Securities.

“At present’s manufacturing reduce sign casts a constructive outlook for a reminiscence chip rebound within the second half of the 12 months.”

Though slicing short-term manufacturing, Samsung mentioned it was nonetheless making long-term investments in infrastructure and analysis to safe wanted clear rooms for chip manufacturing and develop its technological lead.

It didn’t say how its 2023 funding plans can be affected, having beforehand flagged capital spending much like the 53.1 trillion received funding in 2022.

SK Hynix mentioned in October it might greater than halve its capital spending in 2023 versus 2022, whereas Micron reduce fiscal 2023 funding plans by greater than 30% in September.

Graphic: Samsung revenue falls to lowest in 14 years – https://www.reuters.com/graphics/SAMSUNGELEC-RESULTS/gkvlwjwrwpb/chart_eikon.jpg

RECORD CHIP LOSS

Samsung estimated its working revenue fell to 600 billion received ($455.5 million) in January-March, from 14.12 trillion received a 12 months earlier, in a brief preliminary earnings assertion. It was the bottom revenue for any quarter in 14 years.

The primary-quarter revenue fell in need of a 873 billion received Refinitiv SmartEstimate, weighted towards analysts who’re extra persistently correct. A number of estimates have been revised down earlier this week.

Its chip division is more likely to report a document lack of 2.1 trillion received ($1.6 billion), in keeping with a mean of analyst forecasts, and submit one other 2 trillion received loss within the present quarter, a significant divergence for what had been Samsung’s most necessary money cow, producing about half of its earnings in higher years.

Analysts mentioned Samsung’s manufacturing reduce would possibly enhance its efficiency barely within the present quarter and will additionally cement or hasten the rebound of reminiscence chip costs.

“Samsung speaking about manufacturing cuts is proof of how unhealthy the present droop actually is,” mentioned Greg Roh, head of analysis at Hyundai Motor Securities.

The corporate is because of launch detailed earnings, together with divisional breakdowns, later this month.

($1 = 1,319.0000 received)