[Semiconductor Deep Freeze②] Demand↓·Inventory↑ Concerns Become Reality... 'Cold Wave' Until Year-End

TrendForce Forecasts Up to 18% Drop in Consumer DRAM Prices in Q3
Server DRAM Market Outlook Also Unfavorable... Crisis Management with High-Quality Products

SK Hynix's HBM3 DRAM, recognized as a top-tier performance DRAM product. (Photo by SK Hynix)

[Asia Economy Reporter Moon Chaeseok]

"Set (finished product) demand decline → memory semiconductor inventory increase → corporate earnings deterioration."

A 'nightmare' beyond the level of economic downturn is unfolding. The overall view in the global semiconductor industry is that it will be difficult to escape this trend at least until the end of the year. Since major domestic comprehensive semiconductor companies such as Samsung Electronics and SK Hynix are not exempt from this trend, concerns are even emerging that dark clouds may be looming over the Korean economy.

According to the industry on the 15th, global market research firms expect the impact of falling prices of memory semiconductors such as DRAM to continue at least until the end of the year. According to an analysis report released on the 11th by the Taiwanese agency TrendForce, DRAM prices in the third quarter could fall by up to about 18% compared to the second quarter. This is a downward revision of 5 percentage points (p) from the previous estimate of a maximum 13% decline compared to the previous quarter.

An industry official said, "5%p is a figure that cannot be ignored," adding, "It can be interpreted that (TrendForce) emphasized that the DRAM market in the second half will be worse than expected." The official added, "Considering that Taiwan is also a country with major semiconductor companies such as TSMC, this analysis result reflects the awareness that neither Taiwan nor Korea can be exceptions to this trend."

TrendForce even predicted that DRAM prices in the fourth quarter will be 3-8% lower than in the third quarter. This is 3%p lower than the previous forecast of a 0-5% decrease. TrendForce explained, "We expect consumer DRAM prices to continue to fall until the market oversupply is resolved." TrendForce's analysis results are estimates of consumer DRAM prices for high-performance set-top boxes, game consoles, and smart TVs, and do not include forecasts for high value-added DRAMs used in servers, PCs, mobiles, and graphics.

However, many analyses also suggest that the outlook for high value-added segments such as server DRAM is not bright. This is supported by the view that data centers using server memory will also likely exhaust their inventory first. For example, SK Hynix is known to have about 80% of its DRAM sales from server and mobile DRAM.

Samsung Electronics explained in its second-quarter earnings conference call, "The impact of demand decline on server memory semiconductors due to macroeconomic downturn is relatively small, but due to the global economic recession and geopolitical issues, customers may temporarily adjust memory inventory."

Given this situation, concerns about inventory increases are inevitable. The severity of the market downturn can be seen from the case where South Korea's semiconductor inventory increased to the highest level in over six years in June.

According to the "June Industrial Activity Trend" released by Statistics Korea on the 29th of last month, the manufacturing inventory ratio (the relative ratio of inventory to shipments) in June was 124.6%, up 10.3%p from the previous month. This means that companies had more unsold inventory than before. This is the highest level in 2 years and 1 month since the 128.6% recorded in May 2020.

The year-on-year increase rate of semiconductor manufacturing inventory recorded 79.8%, the highest since April 2016 (104.1%). The year-on-year increase in semiconductor inventory has continued since October last year. Compared to May, inventory increased by about 6%.

As inventory increases, pressure to reduce production often arises. However, the domestic industry did not agree with the interpretation of an "oversupply" situation raised by some. An industry official diagnosed, "It is difficult to see it as oversupply because not all DRAM companies are flooding production to expand market share regardless of market prices."

The industry showed a cautious response, expecting to implement management strategies that control production volume and defend profitability by offering high value-added solution products.

Han Jin-man, Vice President and Head of Memory Semiconductor Strategy Marketing at Samsung Electronics, also stated in the Samsung Electronics second-quarter earnings conference call on the 28th of last month, "Not only DRAM but the overall market volatility is large," adding, "We will maintain a policy of optimizing the portfolio centered on high value-added, high-capacity solution products based on flexible supply linked to market conditions and customer demand."