Ukraine Crisis, Inflation and Other Adverse Factors
Rapid Decline in IT and Device Demand
Concerns Over Boosting DS Performance
"Structural Improvement Through Non-Memory and Software"
[Asia Economy Reporter Moon Chaeseok] As global demand decreases and semiconductor inventories increase, there are forecasts that memory semiconductor prices such as DRAM and NAND flash will see larger declines in the second half of the year. The DS (semiconductor) division accounts for about one-third of Samsung Electronics' operating profit, and memory semiconductors make up about three-quarters of the DS operating profit. The drop in semiconductor prices inevitably delivers a direct blow to Samsung Electronics' overall performance.
According to market research firm DRAMeXchange on the 7th, the fixed transaction price of DRAM rose from $3.80 in April-June last year and $4.10 in July-September, but reversed to a decline at $3.71 in October-December, $3.41 in January-April this year, and $3.35 in May-June. The fixed transaction price of NAND flash also steadily increased from $4.20 in January-March last year, $4.56 in April-June, and $4.81 from July until last May, but began to fall to $4.67 at the end of last month.
The problem is that the market situation is expected to worsen further in the second half. Due to the prolonged Russia-Ukraine conflict, inflation, and rising interest rates, demand for IT devices that use semiconductors is rapidly shrinking. Market research firm Gartner forecasted that global PC and smartphone shipments will decrease by 9.5% and 5.8%, respectively, compared to last year.
Park Jaegun, president of the Korea Semiconductor Display Technology Society (professor at Hanyang University), said, "Since more than half of DRAM manufacturers' performance depends on the PC and smartphone sectors, when the economy worsens, memory semiconductor demand sharply decreases, causing prices to fall. Companies will need to accelerate technology development to reduce (production) costs."
The DRAM market is seeing price drops even in server DRAM, which had previously defended prices. Reflecting this, the market expects the average price decline floor for DRAM across all uses?PC, mobile, and server?in the third quarter to be 10% or possibly more. Initially, the price drop was expected to be 3-8%, but the decline has deepened. Samsung Securities analyst Hwang Minseong said, "The DRAM decrease in the second quarter was mainly due to a slowdown in smartphone sales, and order reductions have been observed since May. The third quarter is expected to see weakness mainly in servers."
For Samsung Electronics, which heavily depends on memory semiconductors, there is no choice but to consider a 'Plan B' to boost DS division performance amid the deteriorating market environment. According to Samsung Electronics' detailed operating profit by division announced in April for the first quarter, the DS division recorded 8.45 trillion won, about twice as much as the DX (set) division?which combines video display, home appliances, and mobile?at 4.56 trillion won. Considering that the DX division's sales were about twice that of the DS division (48.07 trillion won vs. 26.87 trillion won), the DS division's significance is clear. Memory semiconductors accounted for 74.8% (20.09 trillion won) of the DS division's operating profit.
Regarding this, President Park said, "Considering major variables such as the Russia-Ukraine war, it is not impossible that semiconductor companies, including Samsung, may adjust the pace of investment." A semiconductor industry insider also lamented, "It is difficult to predict now whether the memory semiconductor market will continue to stagnate, but the increasing uncertainty itself is indeed a burden on management."
Looking at Samsung Electronics' performance, other divisions like DX can compensate, but from the perspective of Samsung Group's growth, there are calls to fundamentally accelerate the transition to non-memory semiconductors and software businesses. Moon Songcheon, honorary professor at KAIST, said, "Memory semiconductor prices have repeatedly fluctuated like an annual event, and they are naturally falling now due to decreased PC and smartphone demand. Samsung Electronics will respond quickly as it has done so far. The more important issue than this performance is to speed up business transformation, and Samsung Electronics cannot rely solely on the memory semiconductor business, which has large price fluctuations, forever."
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