[Corporate Inventory Crisis] Companies Weighing Investment Timing Despite High Inventory Risk

Memory Semiconductors, Cycle Prediction Not Easy
Cannot Give Up on High-Value Portfolio Optimization

[Asia Economy Reporters Moon Chaeseok and Kim Pyeonghwa] As the global phenomenon of the three highs (high inflation, high exchange rates, and high interest rates) reduces consumer demand, product inventories are piling up, but companies are quietly looking for a 'turnaround' opportunity. In particular, memory semiconductor companies are busy trying to time their investments despite forecasts that the market conditions will remain poor at least until next year.

According to the industry on the 16th, it may seem that the situation could be easily resolved if memory semiconductor companies adjust production levels according to inventory conditions, but it is not an easy task in practice. Since semiconductors are not items directly close to final demand, predicting cycles is difficult.

Especially, memory semiconductors have greater volatility compared to non-memory (system) semiconductors, making forecasting more challenging, according to industry insiders. Because predictions are difficult, companies need to maintain an appropriate level of inventory to supply promptly when demand increases, so they cannot simply deplete inventories recklessly. Unlike the past when semiconductor depletion cycles followed the Olympic cycle of about four years, recently the fluctuation period has shortened to between one and two years, which also complicates forecasting.

Given this situation, the securities industry is also producing various predictions about the timing of inventory depletion in the memory semiconductor market. Samsung Securities, in a report, predicted that the price decline cycle would not be prolonged and that inventories would peak at the end of the year and then decrease. JP Morgan evaluated that inventories would be cleared by the second quarter of next year, allowing the market to recover in the second half. Citigroup expressed the view that as the semiconductor industry continues aggressive sales to reduce inventories, semiconductor prices could hit a bottom in the third quarter and then rebound.

The memory semiconductor industry acknowledges the difficulty of forecasting but intends to respond by closely monitoring market conditions. Samsung Electronics is responding to market conditions by managing demand and supply through global supply chain (SCM) management. SK Hynix also plans to adjust production capacity while avoiding excessive sales.

They also indicated that they cannot abandon the policy of expanding production focused on high value-added products such as servers. On the 29th of last month, Micron announced the mass production of DDR5 DRAM, the latest generation of DRAM for servers and PCs, raising market growth expectations. The growth of demand companies can be interpreted as an 'investment timing' opportunity for suppliers like Samsung Electronics and SK Hynix. According to market research firm Omdia, the market share of DDR5 DRAM in the overall DRAM market is expected to rise from about 2% this year to 42% by 2026. For this reason, the industry believes that the fundamentals of memory semiconductors have not yet weakened.

Han Jinman, Vice President of Samsung Electronics’ Memory Business Division Strategy Marketing Office, said during the Q2 earnings conference call at the end of last month, "In the second half of the year, as mass production of DDR5 begins and the market expands, and with a meaningful increase expected next year, we plan to optimize our portfolio focusing on high-quality, high-capacity solution products and supply flexibly according to demand."