Samsung to cut smartphone production by 30%: "There's no profit even if we sell"

Samsung Electronics' Mobile eXperience (MX) division has begun cutting production for the fourth quarter of this year. A reduction of up to 30% is expected. This is interpreted as being driven by deteriorating operating profit margins due to a sharp rise in memory prices incurred during the holiday season.

According to multiple IT (information and communications) industry sources on the 7th, Samsung Electronics' Mobile division recently requested partners to reduce product supply volumes by 20% to 30%. Consequently, Samsung Electronics' smartphone production for the fourth quarter is projected to decrease by up to 30%.

Market research firm IDC tallied Samsung Electronics' smartphone shipments for the first and second quarters of this year at 62.4 million units and 62.7 million units, respectively. It forecasted production of 59 million units and 52 million units for the third and fourth quarters, respectively. According to IDC's calculations, smartphone production in the fourth quarter would decrease by approximately 12% compared to the third quarter.

Samsung Electronics' Mobile division decided to cut product production volumes by a larger margin than market forecasts. Samsung Electronics was expected to produce up to 270 million smartphones this year, driven by the success of new products such as the Galaxy Z Fold8, but with the reduction in fourth-quarter production, it appears the company will release an early-200-million-unit volume.

Typically, the fourth quarter is a period when Samsung Electronics' smartphone production declines. Since Samsung Electronics announces new products every January and February, sales of existing products slow down due to demand waiting for new releases. Additionally, as the graduation and enrollment season, which concentrates product demand, falls in the first quarter, fourth-quarter sales have been relatively sluggish.

Analysis suggests that a surge in memory prices also drove Samsung Electronics' decision to reduce production. According to semiconductor market research firm TrendForce, the price of low-power DRAM (LPDDR5X) for smartphones in the second quarter of this year traded at $145 to $146 based on 12GB (gigabytes). This represents a 175% increase compared to one year ago. The cause is the surge in memory demand from the AI (artificial intelligence) industry. Smartphone DRAM prices in the third quarter of this year are also expected to rise by approximately 20% from the previous quarter, reaching up to $180.

An IT industry source stated, "Due to rising memory and semiconductor prices, Samsung Electronics smartphones currently yield no profit at all when sold," analyzing that this is a strategy to maintain the company's overall profit level by reducing smartphone production volumes.

Meanwhile, Samsung Electronics will release its preliminary third-quarter earnings on the 8th. According to financial information firm FnGuide, the consensus estimate for Samsung Electronics' operating profit in the third quarter of this year (average forecast from securities firms) is 106 trillion 640.1 billion won. In contrast, one securities firm estimated that the MX division's operating loss would reach 19 trillion won.