Samsung Electronics flagged a gradual recovery for chips in the second half of the year after its semiconductor business reported a record loss on Thursday, driven by weak demand for tech devices.

A global downturn in semiconductor purchases amid an economic slowdown and weak customer spending sent chip prices plummeting in the first quarter, triggering production cuts across the sector.

Samsung (SSNLF) said its chip business would focus on high-capacity server and mobile products “based on expectations of a gradual market recovery and a rebound in global demand” in the second half.

For the current quarter, Samsung said it expected limited recovery for memory chips as major data center firms invested more conservatively in servers.

Revenue fell 18% to 63.7 trillion won.

The South Korean tech giant’s chip division — normally its most reliable cash cow — reported a 4.58 trillion won loss compared to an 8.45 trillion won profit a year earlier.

Shoppers around the world have cut back on purchases due to rising inflation. As a result, smartphone, personal computer and server companies have run down inventories, causing chip prices to plunge by about 70% over the previous nine months.

Samsung made a rare announcement of a chip production cut earlier this month, joining smaller rivals.

Although this could help chip prices recover slightly, analysts said Samsung’s profit in the current quarter may be similar to Q1 without a fundamental recovery in demand for devices that use chips.

By the second half of the year, customers will have run down inventory and gradually start buying chips again, Samsung said.

Despite the record loss in chips, Samsung said it spent 10.7 trillion won in capital expenditures during Q1, the highest for the first quarter of any year.

Out of that, 9.8 trillion won was spent on chips as Samsung sets up production in its Taylor, Texas and Pyeongtaek, South Korea factories.

“Samsung Electronics will continue to invest in memory semiconductors at a similar level to the previous year … to secure mid- to long-term competitiveness,” it said.

Samsung’s mobile business was a brighter spot, reporting 3.94 trillion won profit in Q1, up from 3.82 trillion won a year earlier.

“Samsung is focusing on profit rather than shipments” as it meets more resilient demand for premium smartphones rather than volume, said Jene Park, senior analyst at Counterpoint.

In the second half, Samsung forecast the smartphone market would increase in both shipments and revenue as the global economy recovers.

Shares in Samsung fell 0.5% in morning trade, in line with the wider market.

Samsung shares have risen about 16% year-to-date as investors anticipate a memory chip recovery in the second half of this year. (CNN)

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