Samsung Electronics' smartphone business is under severe profit pressure from soaring memory prices and has been forced to sharply cut production.

According to multiple IT industry sources, Samsung Electronics' Mobile eXperience (MX) division recently asked partners to cut fourth-quarter product supply by 20% to 30%. Industry insiders say that, dragged down by rising memory and semiconductor prices, Samsung smartphones are now "losing money on every unit sold," and the production cut is seen as a proactive move to protect overall profit levels.

Meanwhile, Samsung Electronics will release preliminary third-quarter results on the 8th. According to data from financial information provider FnGuide, the market consensus for third-quarter operating profit is 106.64 trillion won, but some brokerages separately forecast that the MX division will post an operating loss of 19 trillion won.

The scale of this production cut is clearly larger than the market had previously expected. Market research firm IDC had forecast Samsung's fourth-quarter smartphone production at about 52 million units, down about 12% from the third quarter; however, sources say Samsung's actual internal reduction is far greater than that forecast. Samsung had originally been expected to reach an annual shipment target of about 270 million units this year on strong sales of new products such as the Galaxy Z Fold8, but with the sharp fourth-quarter cut, full-year shipments are expected to fall to just over 200 million units.

Memory prices surge, phone business falls into losses

The core driver of this production cut is the sharp rise in memory prices for smartphones.

According to semiconductor market research firm TrendForce, in the second quarter of this year, the price range for 12GB low-power DRAM for smartphones (LPDDR5X) was $145 to $146, up 175% from a year earlier. Prices in the third quarter are expected to rise another roughly 20% on that basis, possibly reaching as high as $180.

The root cause of the memory price surge is the rapid expansion of demand for memory chips from the AI industry, which has shifted supply toward higher-profit AI-related products, tightening supply and steadily raising costs for smartphone memory.

An IT industry source said that, affected by rising memory and semiconductor prices, Samsung Electronics' smartphone sales now generate no profit at all, and the production cut is a proactive strategy to protect overall profitability.

Seasonal factors add pressure, with the fourth quarter traditionally a slow season

In addition to cost pressure, seasonal demand patterns are also an important backdrop for Samsung's decision to cut production in the fourth quarter.

Samsung usually launches new products in January and February each year. As the launch period approaches, consumers tend to delay purchases to wait for new models, slowing sales of existing products. In addition, the graduation and back-to-school seasons that concentrate demand both fall in the first quarter, making the fourth quarter traditionally a relatively slow season for Samsung smartphone sales.

This production cut decision can be seen as a pragmatic choice by Samsung to proactively shrink scale and prioritize profit under the double pressure of the seasonal slowdown and high memory costs.

Full-year shipment target may be missed, MX division loss pressure mounts

From a full-year perspective, this production cut will have a substantial impact on Samsung's smartphone business scale targets.

IDC data show that Samsung's smartphone shipments in the first two quarters of this year were 62.4 million units and 62.7 million units, respectively, with the third quarter expected at about 59 million units. If fourth-quarter production is cut by the maximum amount, full-year shipments will fall from the previously expected about 270 million units to just over 200 million units, a clear shortfall.

At the same time, the profitability of the MX division has drawn intense market attention. According to FnGuide aggregate data, analysts' consensus forecast for Samsung Electronics' overall third-quarter operating profit is 106.64 trillion won, but some brokerages separately predict that the MX division will record an operating loss of as much as 19 trillion won, highlighting the deep erosion of the phone business's profitability by rising memory costs. Samsung Electronics will disclose preliminary third-quarter results on the 8th, when the MX division's actual performance will come under close market scrutiny.