The South Korean tech giant said that we are lowering the production of memory chips by a significant amount, especially that of products with supply secured.
The industry is recovering from a chip shortage over the past couple of years, but many semiconductor manufacturers are struggling to find a balance between their inventories and current demand.
When the economy slowed down, demand for these end products slowed. The makers of these end products stopped ordering chips and focused on selling through the inventory they already had, said Peter Hanbury, an analyst from management consultancy Bain Company.
He added that this resulted in a strong 'bullwhip' effect on semiconductor manufacturers further back in the supply chain, where sky-high demand suddenly dried up during the chip shortage.
Analysts say the company's announcement of a production cut is rare. It announced last month that it plans to invest 300 trillion won over 20 years to develop a mega semiconductor hub in South Korea.
Dylan Patel, Chief Analyst at SemiAnalysis, said that Samsung faces a double whammy of DRAM and NAND memory chips losing money and needing to update the process technology their factories use due to falling behind over the last couple of years.
We expect this inventory digestion phase to complete its course over the next 3 -- 6 months. The end markets will have worked through their inventory and returned to a normal purchasing pattern at that point, said Peter Hanbury.
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