Samsung’s quarterly profits are expected to drop 96% to a 14-year low due to a chip glut.

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Samsung Electronics forecast its second-quarter operating profit fell 96 percent to its lowest in 14 years as memory chip prices continued to slide due to oversupply despite production cuts.

However, the price drop has slowed as Samsung joins its rivals in cutting chip supply. Analysts expect chip prices to bottom out in the current quarter and improve next year.

“We believe the worst quarterly loss from the semiconductor business was in the first quarter of 2023,” Goldman Sachs analyst Giuni Lee said in a report, adding that Samsung’s chip division will turn a smaller profit in the fourth quarter.

Shares of Samsung fell 2 percent on Friday morning after gaining nearly 30 percent year-to-date on hopes of an industry recovery. The company will announce detailed results for the second quarter this month.

The preliminary earnings announcement came after US rival Micron Technology gave an upbeat forecast for the three months ending June 1, in another sign supply shortages were easing. Micron said last week that the worst is over, while SK Hynix executives also expect a recovery this year due to increased demand for artificial intelligence.

Samsung’s operating profit, one of the world’s biggest makers of microchips, smartphones and TVs, is forecast to drop to about Won600bn ($460mn) in the April-June quarter from Won14.1tn a year earlier. This was slightly better than the Won555bn forecast from Refinitiv SmartEstimate. Sales fell 22 percent to about 60 tonnes.

The reason for the sharp decline was its chip division, whose losses were estimated by analysts at around Won3tn-Won4tn. According to market researcher Trendforce, prices for DRam chips used in smartphones, PCs and servers are forecast to fall as much as 5 percent in the current quarter, while up to 18 percent in the second quarter, as customers look to wade through excess inventory. Let’s work

“Samsung’s DRAM shipments are exceeding previous estimates and chip inventories are falling rapidly, so we expect its cost structure to improve rapidly,” said Kim Dong-Won, analyst at KB Securities.

Facing a prolonged industry downturn, Samsung is looking to capitalize on the booming artificial intelligence market. AI-enabled servers require at least four to six times more DRAM capacity, according to Goldman Sachs, and Samsung is working to boost its output of those chips.

Kyung Kae-hyun, the executive in charge of Samsung’s semiconductor business, told employees this week that the company’s share of the fast-growing market for high-bandwidth memory chips used in AI was more than 50 percent.

But IBK Investment & Securities analyst Kim Un-ho cautioned that an excess of inventory could slow the industry’s recovery. “Demand for AI chips will continue to grow, but we are seeing a decline in demand from PCs and smartphones,” he said. Kim said that much more production cuts are needed this year for chip prices to bounce back.

Samsung is expanding its capacity for contract manufacturing — producing chips for other companies — to match bigger rival Taiwan Semiconductor Manufacturing. Samsung plans to start state-of-the-art 2-nanometer production of mobile chips by 2025.

Samsung’s chip losses were offset by profits in its mobile division, with analysts estimating that the company lost about 3.3 tonnes after reducing marketing costs.

Samsung is planning to unveil its latest foldable smartphone in Seoul this month in a bid to increase its share of the premium phone market ahead of Apple launching its next iPhone.