Samsung Electronics Co. shares rallied Friday after the world’s largest memory-chip maker said it will cut production as it forecast a sharp drop in first-quarter profit.
Shares of the South Korea-based company rose as much as 4.7% to 65,200 won ($49.43) in a morning trade, outperforming the benchmark Kospi’s 1.3% rise. The jump put the stock on course for its strongest daily percentage gain in more than 16 months.
Samsung announced the production cut alongside much weaker-than-expected first-quarter preliminary earnings, reflecting the semiconductor industry’s continued struggles with a supply glut, sluggish demand and lower prices for memory chips. The tech giant expects to post a 96% drop in operating profit for the first quarter ending March 31.
Investors and traders, however, appear to be focusing more on Samsung’s move to address industry headwinds by reducing production than on the dreary earnings forecast.
The company, which had until recently opposed reducing its capital expenditure and resolutely stuck with its production plans, said Friday that it is now finally “in the process of lowering some memory-chip production to a meaningful level” after stockpiling enough supply to meet future demand, which it expects to be volatile.
Samsung didn’t elaborate on its chip-production plans but market analysts welcomed the adjustment.
Nomura analysts C.W. Chung and Eon Hwang had said in a recent research note prior to Friday’s announcement that in the face of sluggish demand and surging inventory, Samsung would likely soon “make a rational decision” to join its competitors in scaling down memory-chip output.
Samsung’s output reduction should improve supply-demand conditions in the chip industry, NH Investment & Securities analyst Doh Hyun-woo said in a research note Friday, expecting inventory levels to start going down from the second quarter.