[The Crisis of Korea's Advanced Industries] Samsung Semiconductor Performance Outlook Overtaken by TSMC

Memory Semiconductor Plunge Signals Red for Samsung and SK Earnings
Foundry Posts Record Sales
Samsung and SK Likely to Accelerate Foundry Investments

[Asia Economy Reporter Han Yeju] There is an analysis that the status of Samsung Electronics, the world's number one semiconductor sales company, could be shaken. Due to concerns over an economic recession, the demand for memory semiconductors has sharply declined, leading to a consecutive chain of export volume decreases, inventory increases, and price drops. While Samsung is faltering, Taiwan's foundry company TSMC is growing rapidly. It is expected to surpass Samsung Electronics' sales in the third quarter of this year and maintain its position as the 'global top.'

On the 14th, market research firm IC Insights predicted that TSMC's sales in the third quarter of this year will reach $20.2 billion (approximately 27.9 trillion KRW), an 11% increase from the previous quarter. On the other hand, Samsung Electronics, which recorded the highest global semiconductor sales in the first half of this year, is expected to see its third-quarter sales drop to $18.29 billion (approximately 25.3 trillion KRW), down about 19% from the previous quarter, falling to second place. Intel, which was second in sales last year, is estimated to have third-quarter sales of $15.04 billion (approximately 20.7 trillion KRW), a slight 1% growth compared to the previous quarter.

In the financial investment industry, the third-quarter earnings forecasts for the two major domestic semiconductor companies, Samsung Electronics and SK Hynix, are also being revised downward. According to financial information provider FnGuide, the consensus operating profit for Samsung Electronics in the third quarter is estimated at 13.4961 trillion KRW, a 14.68% decrease compared to the previous year. SK Hynix's third-quarter operating profit consensus is estimated at 2.9865 trillion KRW, down 28.41% from 4.1718 trillion KRW in the same period last year.

The reason for the decline in Samsung Electronics and SK Hynix's performance is attributed to a decrease in memory demand caused by a contraction in the consumer market due to inflation. Since the second quarter of this year, production of smartphones, home appliances, and automobiles has decreased, leading to an accumulation of inventory in major memory demand sectors. In contrast, TSMC is experiencing a different atmosphere from domestic semiconductor companies as orders from major clients such as Apple are increasing. It is also expected to have taken foundry orders from Samsung Electronics, including those from AMD, Nvidia, and Qualcomm, suggesting a robust trend for the time being.

Above all, the difference in performance between domestic and foreign semiconductor companies lies in the temperature difference between the memory semiconductor market and the foundry market. The memory industry, which relies on economies of scale for mass production, and the foundry industry, which produces based on customer orders, differ in their industry characteristics. Foundries mostly operate on one-year long-term contracts, providing high performance stability, whereas memory semiconductors also have volumes distributed through retail agents, and if production exceeds demand, prices can plummet sharply in a short period.

In fact, market research firm TrendForce revised its forecast, announcing that prices for consumer DRAM, a type of memory semiconductor, will fall by 13-18% in the third quarter. This is a 5 percentage point increase from the initial forecast of an 8-13% decline. IC Insights also lowered the growth rate of the IC (integrated circuit) semiconductor market this year from 11% to 7%, a 3 percentage point reduction, considering the memory downturn.

The problem is the bleak outlook that memory semiconductor companies' profits will decrease by 30-40% next year compared to this year. Samsung Securities researcher Hwang Minseong predicted, "Considering the price environment in the second half of the year, SK Hynix's operating profit, which is about 11 trillion KRW this year, will drop to around 7 trillion KRW next year, with memory semiconductor profitability falling by approximately 30-40% compared to this year."

Samsung Electronics and SK Hynix are increasing investments in the foundry sector to break away from their memory-centric structure. The two companies currently hold more than half of the market share combined in the memory semiconductor market, but their foundry sectors are still in the early stages. As of the first quarter of this year, Samsung Electronics ranked second in the foundry market with a 16.3% market share, following TSMC's 53.6%, but it is tightening its pursuit of the leader through advanced process technologies. On July 25 this year, Samsung introduced the world's first product mass-produced using a 3-nanometer foundry process and is also considering large-scale semiconductor M&A (mergers and acquisitions). SK Hynix recently completed the acquisition process of KeyFoundry, which it purchased last October to expand its foundry business. KeyFoundry, headquartered in Cheongju, Chungbuk, operates semiconductor production facilities based on 8-inch wafers suitable for small-volume, multi-product manufacturing.