Samsung to continue with chip investment, undeterred by 8-year-low profit

South Korea's Samsung Electronics Co on Tuesday indicated it has no plan to cut investment in chips this year, even as a weak global economy condemns the industry to its worst downturn in over a decade.

The guidance bucks a broader industry trend to scale back spending and output, fanning concern that the world's biggest memory chipmaker intends to draw on its deep pockets and superior profit margins to gain market share from smaller peers.

"Samsung might be seeing this time as a good opportunity to increase market share, which should help it in the long term, at the expense of SK Hynix and Micron," said analyst Choi Yoo-june at Shinhan Securities.

Greg Roh, head of research at Hyundai Motor Securities, estimated Samsung Electronics' market share may reach the upper 40 per cent range for DRAM chips and mid-30 per cent range for NAND flash memory chips in the second half of the year, from around 43 per cent and 32 per cent.

Instead of cutting investment in response to slowing demand and falling prices, Samsung signalled it would curb short-term production organically through line maintenance, equipment adjustment and moving to advanced chipmaking processes. 

It also said it would increase the proportion of capital investment that goes into research and development.

"Samsung, in a roundabout way, is saying production will decrease slightly," said analyst Kim Yang-jae at Daol Investment and Securities. "However, investors were hoping for a stronger production cut, or a comment about faster market rebound - so its shares fell."

The share prices of Samsung and compatriot SK Hynix Inc fell 3 per cent and 2.2 per cent respectively on Tuesday.

Samsung said capital spending in 2023 would be similar to 2022, in contrast to SK Hynix and Micron Technology Inc which have said they would slash investment. In contract chipmaking, bigger rival Taiwan Semiconductor Manufacturing Co Ltd has also announced a spending cut.

The global technology industry has been battling a sharp and sudden downturn in demand since late last year, as companies cut spending on tech products and services while consumers spend less on discretionary goods in the face of surging inflation.

Stocks of chipmakers in Asia saw losses as Samsung announced it will continue capital expenditure in the upcoming year, in which it spent a total of $38.9 billion for semiconductors in 2022.

Sluggish demand and inventory adjustment will continue to impact the chip business in the first quarter, while smartphone demand is likely to decline year-on-year due to economic slowdown in major regions, Samsung said.

At 4.3 trillion won ($3.49 billion), October-December operating profit was Samsung's lowest quarterly profit in eight years. Revenue fell 8 per cent to 70.5 trillion won. With memory chip prices falling by double-digit percentages in 2022, Samsung's chip profit tumbled - to about 270 billion won in the fourth quarter from 8.83 trillion won a year earlier, marking the lowest since the first quarter of 2009.

Some analysts expect the chip business to book a loss in the first quarter, pulling overall profit below that of the fourth.

Last week, chipmaker Intel Corp said it expects to lose money in the current quarter as the personal computer industry experiences a chip glut.

In mobile, Samsung said fourth-quarter profit fell to 1.7 trillion won from 2.66 trillion won a year earlier, as a decline in low- and mid-end smartphone sales was greater than expected.

Samsung plans to unveil its latest Galaxy S flagship smartphones later this week.