Shinhan Financial Investment Report
[Asia Economy Reporter Myung-hwan Lee] The securities industry has diagnosed that the price decline cycle of memory semiconductors has begun. It was also analyzed that for the memory semiconductor market to rebound, inventory depletion and the easing of macro uncertainties are necessary.
On the 15th, Shinhan Financial Investment analyzed, "Inventories at the front-end demand sectors are rapidly increasing." Shinhan Financial Investment's diagnosis was that memory shipments in the second quarter of this year fell short of expectations, and it also forecasted that shipments in the third quarter, despite being a seasonal peak, are likely to decrease compared to the second quarter.
The simultaneous increase in inventories of both demand sectors and memory manufacturers is a typical memory decline cycle, according to Shinhan Financial Investment's analysis. They pointed out that the biggest challenge for the memory semiconductor industry during the decline cycle is inventory reduction, due to prices falling more than expected while orders remain weak.
Shinhan Financial Investment analyzed that an increase in orders is essential for the memory semiconductor market to revive. They also noted that uncertainties must ease for orders to increase. The reason is that companies will increase orders again when the decline in demand forecasts stops as macro uncertainties ease. They added that demand sectors must deplete inventories to normal levels after prices have sufficiently fallen.
The inventory depletion period is expected to be determined by the scale of investments by manufacturers and the intensity of the macro downturn. They recalled that during the semiconductor decline cycle in 2019, the inventory depletion period for companies was about 10 months. At that time, the macro uncertainty affecting the semiconductor demand decline was the US-China dispute.
They also noted that in this decline cycle, the burden of supply increase by manufacturers is almost nonexistent. However, they predicted that macro uncertainties could be greater than in the 2019 decline cycle. The inventory depletion period for front-end companies is expected to be around 6 to 9 months. Considering that server semiconductor orders began to decrease from May, there is a high possibility that orders from front-end demand sectors will increase around the first quarter of 2023.
Choi Do-yeon, a research fellow at Shinhan Financial Investment, analyzed, "The trend rally of major semiconductor stocks is expected as early as the beginning of the first quarter next year, and the earnings rebound point is expected in the second quarter next year," adding, "Since the current stock prices of Samsung Electronics and SK Hynix are positioned at the low point of the price-to-book ratio (PBR), they are expected to show downside rigidity."
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