Samsung Electronics has announced its decision to cut memory production, marking the first time since 1996. This move reflects the challenging situation in the memory market, compounded by similar actions taken by other memory manufacturers. However, industry experts believe that this decision may actually pave the way for market recovery by the end of the year.
Shares of Micron Technology saw a 6% increase in pre-trading on Monday, as investors anticipate the normalization of supply and demand in the DRAM memory market. With Samsung holding almost half of the global market share in this segment, the reduction in production volumes by the South Korean giant is expected to impact the overall supply chain.
Samsung's RAM inventory is estimated to be equivalent to 21 weeks of sales, and the company experienced a decline in customer orders by at least 30% in the first quarter of this year. Consequently, Samsung's decision to decrease production volumes is viewed as a timely and balanced move, especially as contract prices for memory chips have fallen sequentially by 25-30%. Analysts predict that the company will focus on reducing production of DDR4 chips.
Other major players in the memory market, such as Micron Technology and SK hynix, have also announced their intentions to cut production and capital expenditures in 2023. However, Samsung's decision to follow suit has been perceived as significant, as the company has historically been resilient in this regard. With this change in supply dynamics, the recovery of the DRAM market may accelerate.
The server systems and mobile devices segments, which account for approximately 70% of RAM chip sales, are expected to stabilize in the second half of this year, according to Citi analysts. This further supports the notion of a potential market recovery in the coming months.
