[K-Semiconductor Crisis Theory]④ 'Export Hero' Is a Thing of the Past... The Trap of Negative Growth

Memory Semiconductor on a 'Downward Spiral'... Only Support Is the Positive Effect of Won-Dollar Exchange Rate Increase

[Asia Economy Reporter Han Yeju] The semiconductor export boom is now a thing of the past. With a global economic recession and a sharp rise in raw material prices, the semiconductor industry, which has driven South Korea's economic growth, is now facing strong "warning signals." While domestic semiconductor companies such as Samsung Electronics and SK Hynix are focusing on how much the rising won-dollar exchange rate can offset the poor performance in the second half of the year, concerns about the sluggish market conditions remain.

On the 29th, market research firm TrendForce predicted that NAND flash prices will fall by 15-20% in the fourth quarter compared to the previous quarter. NAND flash prices in the third quarter were expected to drop by 13-18% quarter-on-quarter, but the decline is expected to be even greater in the fourth quarter. The memory semiconductor segment, which has recently been deteriorating rapidly, is not limited to NAND flash. TrendForce also forecasted that DRAM prices will fall by 13-18% in the fourth quarter, following a 10-15% drop in the third quarter.

For Samsung Electronics, memory accounts for 74% of total semiconductor sales as of the second quarter, while for SK Hynix, it is an overwhelming 97%.

The decline in memory semiconductor prices is expected to negatively impact not only these two companies but also exports. Semiconductor exports in the first half of this year amounted to $69.02 billion, accounting for 19.7% of total exports ($350.3 billion). According to the Ministry of Trade, Industry and Energy, semiconductor exports in August were $10.78 billion, down 7.8% from the same month last year. This marks the first decline in semiconductor exports in a full 26 months.

The only hope now lies in the effect of the rising won-dollar exchange rate. Domestic semiconductor companies are paying close attention to how much the strong dollar can offset the poor performance. Generally, in the semiconductor and electronics industries, an increase in the exchange rate positively affects earnings. Especially for semiconductors, where the main payment currency is the dollar, the rising won-dollar exchange rate improves profitability. Samsung Electronics revealed that it earned about 1.3 trillion won in profits in the second quarter solely due to the won-dollar exchange rate increase. SK Hynix also explained that it saw an operating profit increase of about 400 billion won.

However, considering the slowdown in demand that has halted export growth and the rising cost burdens such as raw materials and logistics, the positive effects are expected to be somewhat limited. As a result, Samsung Electronics and SK Hynix are likely to see their second-half performance shrink compared to last year.

According to financial information firm FnGuide, the consensus operating profit forecast for Samsung Electronics in the third quarter of this year is 12.855 trillion won, down 18.7% from the same period last year. If this forecast materializes, Samsung Electronics will record negative growth compared to the previous year for the first time in about three years since the fourth quarter of 2019. SK Hynix's third-quarter operating profit forecast is 2.5512 trillion won, a sharp 38.8% decline from the same period last year. Compared to the forecast three months ago (4.772 trillion won), it has shrunk to about half.

Kim Dongwon, a researcher at KB Securities, said, "The slowdown in memory demand and price weakness are due to reduced demand from front-end industries such as PCs, smartphones, and servers, as well as conservative inventory policies by customers concerned about an economic slowdown next year." He added, "The weakness in memory prices is expected to continue until the first half of next year, when customers complete their inventory adjustments."