Given the global economic conditions, the world’s big tech giants, Samsung and LG Electronics have reported having slashed their production power to cope with dwindling customer demand.
According to an industry official Friday, negative economic conditions such as inflation, high-interest rates, semiconductor shortage, and Russia’s invasion of Ukraine have induced the two big tech giants to slash their TVs and other home appliances production output.
Notably, as a result of Russia’s invasion of Ukraine and supply chain interruptions, food and energy prices have risen, causing consumers to delay replacing home appliances while vital daily requirements such as food and commodities prices increased.
According to industry research company Display Supply Chain Consultants (DSCC), Samsung Electronics’ average inventory turnover days in the second quarter of this year were 94 days, approximately two weeks longer than the previous year.
The number of days of inventory turnover is the amount of time it takes for stock inventory to be converted into sales. The shorter the duration, the lesser the manufacturer’s expense burden. Samsung Electronics’ inventory assets climbed by 53.9 percent to 49.84 trillion won in the first quarter of this year, according to data provided to the Financial Supervisory Service.
As stockpiles grew, Samsung Electronics reportedly informed parts suppliers of volume modifications, indicating a reduction in output. Therefore, they have temporarily halted new procurement orders due to an increase in inventory and concerns about global inflation.
Thus, to overcome the crisis, Samsung Electronics is focusing on premium products, as high-income earners who buy premium products are less affected by high costs and loan rates. According to reports, the company’s Global Strategy Council considered the expansion of luxury items.
Likewise, in a similar vein, LG Electronics appears to be reducing the output of its home appliances in response to declining demand.
An official of the firm, who speaks on the development said there was an increase in demand during the pandemic but the firm is transitioning to an endemic so the company’s production output has been adjusted accordingly.
Recall that LG Group recently held a strategy meeting with Chairman Koo Kwang-mo and the CEOs of major affiliates in attendance, where extensive talks were undertaken in reaction to the crisis. The last time the firm held such a meeting was three years ago, 2019.
Reacting to the situation, Kim Rok-ho, an analyst at Hana Financial Investment said:
“Uncertainty about demand across the tech sector is increasing, and the overall sluggish trend continues. The decline in demand for home appliances and TVs has been a concern since the second half of last year, and we are confirming the data on the decline in demand.”