Samsung reportedly can't make a profit on its phones, so it's cutting production by millions

Samsung is reportedly preparing to significantly cut its smartphone production in the fourth quarter of this year owing to soaring memory prices and decreasing profitability of its devices.

Korean publication Money Today reports that Samsung’s Mobile Experience (MX) division has recently asked suppliers to reduce production volumes by 20-30%.

Citing multiple industry sources, the report says that Samsung’s decision to cut smartphone production is largely driven by rising memory prices. The company is apparently trying to avoid making more smartphones that would generate little or no profit.

Samsung’s smartphone production normally declines toward the end of the year as consumers start waiting for the company’s next-generation S-series flagships that launch in January and February. However, Money Today says Samsung’s planned reduction is larger than what the market had expected.

The company had reportedly been expected to produce as many as 270 million smartphones this year. However, with the additional Q4 cuts, the report says Samsung’s annual production could end up in the low 200-million range.

An unnamed source told Money Today that Samsung’s smartphones are currently generating little to no profit after accounting for rising memory and semiconductor costs. The source said that the production cuts are a way for Samsung to protect its overall profitability.

According to data from market research firm TrendForce cited in the report, the price of 12GB of LPDDR5X smartphone memory reached around $145-$146 in the second quarter, representing a 175% increase from a year earlier.

These prices are expected to rise further by around 20% in the third quarter from the previous quarter, potentially reaching as much as $180 for 12GB.

This creates a very difficult situation for smartphone makers like Samsung because memory is a major component cost, and phone prices can’t be raised as quickly as the rising memory costs. Hence, if devices are less profitable to sell, it just makes sense to cut production. That said, Samsung has not officially confirmed the reported 20-30% production cut.