Samsung Electronics issued a downbeat guidance for Q1 2023, as the tech giant plans to scale back production of memory chips in the face of sharp price declines and expects operating profit to plunge.

In its Q1 earnings guidance, the company estimated operating profit would drop 96 per cent year-on-year to KRW600 billion ($461.5 million) from KRW14.1 trillion a year earlier and revenue to decline 19 per cent to KRW63 trillion.

The smartphone giant, which will release full Q1 earnings later in the month, said it would cut chip capacity without disclosing details.

A sharp drop in global demand for electronic gadgets has weakened the semiconductor market.

“Samsung previously thought that it would be able to power through this downturn as it has before, but it looks to me as if pricing has fallen harder than it thought leading to larger losses and a rethink of its short-term strategy,” noted Richard Windsor, founder of research blog Radio Free Mobile.

In Q4 2022, the group’s revenue decreased 8.2 per cent to KRW70.5 trillion. Net profit more than doubled to KRW23.5 trillion, attributed to a decline in income tax from previously deferred liabilities related to subsidiary dividends.

On its Q4 2022 earnings call, EVP of investor relations Ben Suh noted that while 2023 capex was not finalised, for its memory business the company would continue to invest for the mid- to long-term to prepare for future demand.

Rival SK Hynix revealed plans to reduce capex by more than 50 per cent from the KRW19 trillion spent in 2022 as it booked a net loss in Q4.