After the chip shortage during COVID, Samsung produced an enormous number of computer chips - and now faces a chip glut.
👉 Background: Samsung is the South Korean tech behemoth and the world's largest maker of memory chips, smartphones, and televisions. In fact, in 2021, the Samsung Group and its affiliated entities accounted for about 20% of South Korea's gross domestic product (GDP).
👉 What happened: After the chip shortage during COVID, Samsung produced an enormous number of computer chips - and now faces a chip glut. In fact, Samsung's chip division is expected to report losses of between 3 trillion and 4 trillion won.
👉 What else: On top of that, Samsung has now cut back on chip production, which has made each and every chip more expensive - because they don't have the economies of scale anymore.
💡Economies of scale are the cost advantages that a company achieves when it increases the scale of their operations.
💡The more units produced, the lower the cost per unit. So when you're churning out millions and millions of chips, your individual unit costs generally become cheaper.
💡But, Samsung's decision to cut back on chip production has negatively affected their economies of scale, and this led to not only lower profitability but also higher production costs per chip.
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