Samsung cuts spending as 2Q drops

Prices for the chips Samsung and Hynix make have slumped 90 percent this year

By staff and wire reports

SEOUL, South Korea -- Samsung Electronics will cut its factory spending after quarterly profits dropped 29 percent, it said Friday.

The world's largest maker of memory chips made a net profit of $675.8 million (880 billion won) in the second quarter, down from 1.24 trillion won in the first quarter.

The profit was near the high end of forecasts. But Seoul-based Samsung will scale back its chip-production expansion as a result.

Spending down 16 percent

The company has cut its capital spending 16 percent this year, by 1 trillion won to 5.1 trillion won, or $3.9 billion.

For the second quarter, sales dropped seven percent to 8 trillion won, from 8.6 trillion won.

Samsung was only confirming the already dim state of the chip world.

Samsung's rival Hynix Semiconductor, said Thursday its quarterly losses were three times worse.

It reported a before-tax loss of $204 million, or 266 billion won, for the second quarter, compared with 69 billion won in the first quarter.

Hynix hand on the scalpel

Hynix is also taking the scalpel to its expansion plans. It will cut capital spending this year up to 40 percent, to between 600 billion and 800 billion won, from its original plan of 1 trillion won.

Hynix is also shutting its U.S. plant in Oregon for six months. Hynix, formerly Hyundai Electronics Industries, is the world memory chipmaker No. 3 after Samsung and U.S.-based Micron Technology.

Prices of the chips that Samsung makes - known as dynamic random access memory or DRAM chips - have fallen 90 percent this year, to $1 from $9, as electronics demand disappears.

Korean chip exports off 60 percent

The situation isn't getting better. South Korea's chip exports will likely to drop 60 percent for July, to $970 million, over a year ago, according to a report citing Korea's Ministry of Commerce, Industry and Energy.

Samsung Electronics is South Korea's largest stock, by market capitalization. It dropped after its earnings announcement but was rallying toward midday. It was down 0.6 percent at 176,000 won shortly before noon.

Seoul's benchmark Kospi was faring worse, down 1.7 percent at 536.55. A South Korean think tank cut its growth forecast for the chip-heavy Korean economy.

Hynix closed at an all-time low after its earnings on Thursday. It was wilting again Friday, down 3.8 percent to a fresh record low of 1,460 won.

Hynix said this week it will move its headquarters from Seoul to the California city of San Jose, shifting 150 workers. Most of its customers, including IBM and Apple, are in the United States.

Reuters contributed to this report.