Semiconductor DRAM with Increased Inventory, Spot Prices Plummet

[Asia Economy Reporter Changhwan Lee] Concerns are emerging in the industry as the spot price of semiconductor DRAM, one of South Korea's main export products, has recently dropped significantly.

According to market research firm DRAMeXchange on the 21st, the spot price of DDR4 8-gigabit (Gb) DRAM products, mainly used in PCs, was $2.85 as of the 19th.

The spot price of DDR4 8Gb DRAM has been declining for two consecutive months after peaking at the $3.6 range in early April. It has fallen about 21% compared to the peak.

The DRAM spot price has now fallen below the fixed price. The fixed price of DDR4 8Gb DRAM in May was $3.31, continuing an upward trend for five consecutive months, and the spot price had been significantly higher.

Companies mainly trade semiconductors at fixed prices, but since spot prices tend to reflect fixed prices in advance, the trend of spot prices is also considered important. As spot prices continue to fall, there are expectations that the previously rising fixed prices will also slow down. The increase rate of DRAM fixed prices was 11.9% month-on-month in April but slowed significantly to less than 1% last month.

The decline in semiconductor spot prices is interpreted as being due to a decrease in semiconductor demand amid the ongoing spread of the novel coronavirus disease (COVID-19). Although demand for data center semiconductors had increased due to the expansion of contactless culture caused by the virus, there are reports that orders are decreasing as semiconductor inventories at companies have recently increased.

Researcher Seungwoo Lee of Eugene Investment & Securities explained, "Recently, there have been reports of increased inventories at some data centers and DRAM order cuts. While the inventory levels of data center companies vary widely, it seems clear that the common factor is that inventories are generally higher than the appropriate levels known."

Lee added, "Inventories are moving from semiconductor manufacturers to data centers and set companies such as smartphone makers. The possibility that companies' investment budgets may decrease in the second half of the year due to the impact of COVID-19 is also a burden on DRAM prices in the second half."

Hyundai Motor Securities also evaluated, "Until last month, fixed prices remained strong due to increased laptop production caused by COVID-19, but distributors are clearing inventories amid concerns that PC demand related to COVID-19 contactless culture will not continue."

The company predicted that due to reduced capital expenditures by Google and Facebook, server DRAM prices will remain flat in the third quarter and slightly decline in the fourth quarter.

The Bank of Korea stated in its Monetary and Credit Policy Report released on the 11th, "The impact of COVID-19 spread on the semiconductor industry has both positive and negative aspects, but the negative impact is expected to be greater in the short term."

While the increase in server demand due to active contactless economic activities is positive, the decline in demand for durable consumer goods such as mobile phones and home appliances, which have a larger share of semiconductor demand, due to COVID-19 is expected to have a greater impact.