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Ahead of Samsung Electronics' provisional first-quarter earnings announcement, which was announced on the 7th, attention inside and outside the semiconductor industry is focused on whether there will be a change in Samsung Electronics' stance that "there is no artificial production cut."

As the semiconductor sector alone is expected to have a deficit of around 1 trillion won due to the deterioration of the memory industry, which supported performance, the watching point is whether the previous "hang on" strategy can be continued.

According to the industry today (4rd), Samsung Electronics is holding an internal meeting to consider the level of production cuts.

Internally, it is known that there is a divergence between the position that production should be cut in consideration of the deeper-than-expected semiconductor business situation and the current stock price, and the position that the company should maintain its existing stance and widen the gap with competitors for the sake of the company's future value.

On the 3th, only provisional figures for sales and operating profit will be released, but it seems inevitable that further statements on production cuts will be made during the conference call that accompanies the announcement of definitive earnings later this month.

Earlier, in the conference call in the fourth quarter of last year, contrary to market expectations that production would be cut, "this year's facility investment (Capex· CAPEX) will be at a level similar to the previous year," he said, reaffirming his previous position that "there are no artificial production cuts."

However, it left room for "natural production reduction" through production line optimization such as facility relocation and microprocess conversion.

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The market already sees a natural production cut of about 20%.

Do Hyun-woo, a researcher at NH Investment & Securities, said, "According to some test and component companies, the volume of orders received from Samsung Electronics in the first quarter decreased by more than 1%," and predicted, "Samsung Electronics' current DRAM inventory is higher than 30 weeks compared to competitors, and the level of production cuts will be expanded to overcome this situation."

According to Samsung Electronics' 21 business report, the inventory of the DS division, which is responsible for semiconductors, jumped 2022.2021% (KRW 16.4 trillion) from KRW 551.29 trillion at the end of 576 to KRW 76.6 trillion at the end of last year.

The problem is that the semiconductor industry is worse than forecast in January this year, when the fourth quarter of last year earnings were announced.

According to Yonhap Infomax's latest one-month report of the consensus (earnings forecasts) of 12 securities firms, Samsung Electronics' first-quarter operating profit is expected to be KRW 6.25 billion, a sharp drop of 4.1% compared to the same period last year.

Sales are expected to decrease by 1.18% to KRW 1,7.201 billion.

At the beginning of this year, the market expected Samsung Electronics' first-quarter operating profit to be 94-9 trillion won, but as time goes by, the level of attention continues to decline.

There is even a forecast of an operating deficit of 17 billion won (Daol Investment & Securities).

Rok Ho Kim, a researcher at Hana Securities, said, "Inventories may have increased in the first quarter as shipments continue to be sluggish while Samsung Electronics' DRAM production has not decreased, so it is time to think about conservative capa (capacity) operation policies."

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Micron, which has already started to cut production, also hinted at further production cuts.

In its latest earnings call, Micron lowered its facility investment (CAPEX) for fiscal year 2023 from "up to $75.70 billion" to "up to $29 billion."

Park Jung-ho, Vice Chairman of SK hynix, compared the situation facing the DRAM industry to a "prisoner's dilemma" at the general shareholders' meeting on 3 March.

Vice Chairman Park said, "Three people (Samsung Electronics· With SK hynix and Micron's general-purpose products, customers are playing, and if they continue to play, they will go through a process of rapidly lowering prices in terms of oversupply in a downcycle."

Due to the nature of memory semiconductors, even if demand is sluggish, prices can rise if supply is below demand.

According to Taiwanese market research firm Trendforce, the average selling price (ASP) of DRAM plummeted by 1% in the first quarter.

"The price decline is expected to slow to 20-2% in the second quarter," Trendforce said, adding, "DRAM ASP continues to fall due to high supplier inventory levels, and prices can only rebound if production is significantly reduced."

Therefore, there is an expectation that Samsung Electronics will show a signal of production cuts that are one step further than before.

Kim Woon-ho, a researcher at IBK Investment & Securities, said, "The most necessary variable at this point is the supply strategy, and although it is too late, we believe that there is sufficient consensus on negative production bit growth (production growth rate in bits)."

However, considering the market outlook and its strategy so far, there is a view that it is unlikely that Samsung Electronics will revise its previous position that "there is no artificial production cut" this time.

In the case of memory, the reason is that the actual benefit from the production cut will not be significant as shipments are expected to increase from the second quarter and inventory levels are expected to gradually decrease due to the recovery of demand due to the full-scale supply of central processing units (CPUs) for new servers.

At a management briefing for employees in February, Samsung Electronics DS Division President Kyung Kyung-hyun said, "There is a movement to reduce investment in the industry as a whole, but Samsung Electronics is not reducing investment for the future," and emphasized that "we must take advantage of this opportunity to restore our super-gap competitiveness in the memory business."

SK hynix also takes the position that there will be no additional production cuts other than the previously announced production reduction plan.

"Even if production cuts are carried out, DDR10 inventories already in place will not decrease before demand recovers, and DRAM will still have time to reach cash costs even if inventory valuation losses are taken into account," said Chae Min-suk, a researcher at Korea Investment & Securities.

(Photo = Courtesy of Samsung Electronics, Yonhap News)