Samsung expects an H2 turnaround after a Q1 chip loss of $3.4 billion.. After its semiconductor unit announced a record $3.4 billion loss on Thursday, Samsung Electronics Co Ltd (005930. KS) predicted a modest chip recovery in the year’s second half due to weak tech gadget demand.

In the first quarter, chip prices fell due to a global slowdown in semiconductor procurement and corporate belt-tightening.

Samsung said customers would burn down inventory and start buying chips again by the second part of the year.

“We expect inventory levels to start dropping in the second quarter,” said Samsung memory executive vice president Jaejune Kim.

In the current quarter, Samsung projected little memory chip recovery as large data center corporations spent more prudently on servers.

The world’s largest memory chipmaker reported a 95% drop in operating profit to 640 billion won ($478.6 million) for the January-March quarter, its lowest profit in 14 years.

The South Korean IT giant’s semiconductor segment, usually its cash cow, lost 4.58 trillion won ($3.41 billion) compared to 8.45 trillion won a year earlier.

Inflation has slowed global shopping. Smartphone, PC, and server vendors have depleted stocks, lowering chip costs by 70% over the past nine months.

This month, Samsung and SK Hynix Inc (000660. KS) decreased chip manufacturing.

Analysts suggested Samsung’s earnings in the upcoming quarter may be comparable to the first without a fundamental improvement in chip demand.

“In addition to production cuts in the current quarter, Samsung said its production will be flexible in the second half, which means it could engage in more cuts to manage inventory,” said BNK Investment & Securities analyst Lee Min-hee.

Despite the record semiconductor loss, Samsung reported 10.7 trillion won in first-quarter capital expenditures, the largest ever.

Samsung spent 9.8 trillion won on semiconductors to start production in Taylor, Texas, and Pyeongtaek, South Korea.

To secure factory space, Samsung said it would invest similarly in memory chips this year as in 2022.

It added that electric cars, AI, and high-performance computers would drive chip demand, maintaining its long-term optimism.

The first quarter’s 3.94 trillion won earnings from Samsung’s mobile division were a bright spot.

“Samsung is focusing on profit rather than shipments” to suit premium smartphone demand, said Counterpoint senior analyst Jene Park.

Samsung predicted higher smartphone shipments and revenue in the second half.

Samsung shares recovered 0.3% after the results call. Investors expect a second-half memory chip revival, driving the stock up 16% year-to-date.