Samsung Electronics' plant in Hwaseong, Gyeonggi Province / Courtesy of Samsung Electronics
By Kim Hyun-bin
Samsung Electronics and LG Electronics have decided to cut production of their TVs and other home appliances to cope with declining consumer demand amid unfavorable economic conditions such as inflation, high interest rates and Russia's invasion of Ukraine, according to industry officials Friday.
"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 actually confirming the data on the decline in demand," said Kim Rok-ho, an analyst at Hana Financial Investment.
According to market research company Display Supply Chain Consultants (DSCC), the average number of inventory turnover days for Samsung Electronics in the second quarter of this year was 94 days, about two weeks more than in the previous year.
The number of days of inventory turnover is the time it takes for inventory in stock to turn into sales. The shorter the period, the lower the cost burden for the manufacturer.
Samsung Electronics' inventory assets in the first quarter of this year, disclosed to the Financial Supervisory Service, also increased by 53.9 percent to 49.84 trillion won from the same period last year.
As inventories increased, Samsung Electronics reportedly notified parts suppliers of volume adjustments, signaling a decrease in production. According to reports, Samsung Electronics suspended new procurement orders temporarily due to an inventory surge and concerns about global inflation.
Samsung Electronics' home appliance inventory is said to have increased as social distancing measures eased worldwide and outdoor activities increased, lowering the demand for home appliance replacements.
Food and energy prices skyrocketed amid Russia's invasion of Ukraine and supply chain disruptions, leading consumers to postpone their replacement of home appliances as essential daily necessities such as food and commodity prices increased.
Samsung Electronics is concentrating on premium products to overcome the crisis, as high income earners who purchase premium products are less affected by high prices and high interest rates. It is reported that the expansion of premium products was discussed at the company's Global Strategy Council, which started Tuesday.
In the first quarter of this year, global TV market sales fell 4.9 percent compared to the same period of the previous year, but QLED sales increased 23 percent to 3.3 million in the first quarter of this year.
"High inflation, high interest rates and economic recession are not problems for one specific company, but for the entire industry. It is not a problem that one company can solve," an industry official said on condition of anonymity.
LG Electronics' A3 OLED factory in Gumi, North Gyeongsang Province / Courtesy of LG Electronics
LG Electronics also appears to be decreasing the output of its home appliances to deal with lower demand.
"There was an increase in demand during the pandemic but we are transitioning to an endemic so we have been adjusting our production accordingly," an LG Electronics official said.
According to LG Group, a business strategy meeting was held with the presence of Chairman Koo Kwang-mo and the CEOs of major affiliates. The business community believes major discussions in response to the crisis were held. It was the first time in three years since 2019 that LG held a strategy briefing session in the first half of the year hosted by the chairman.
