[Chiptok] The Global 'Semiconductor Cold Spell'... Earnings, Stock Prices, and Employment 'Stall'

Samsung, SK, TSMC, etc... Major Corporate Indicators Decline
Situation Severe to Rely on Optimism for Long-Term Demand Surge
'Memory Super-Gap' Technology Development... Focused on the 'Basics'

[Asia Economy Reporter Moon Chaeseok] Global semiconductor companies are facing a "harsh winter" as consumer demand weakens due to the global inflation-driven high interest rate environment and the prolonged Russia-Ukraine war. In addition to market factors such as demand decline, political risks like the U.S. semiconductor equipment sanctions against China are continuously emerging as adverse factors. As a result, the slowdown in major semiconductor companies' earnings, stock prices, and employment is becoming increasingly evident.

According to the semiconductor industry on the 24th, the third-quarter revenue estimates for the top five companies by sales?including the memory semiconductor "Big 3" Samsung Electronics, SK Hynix, and Micron, as well as the world's largest foundry (semiconductor contract manufacturing) company Taiwan's TSMC and U.S. Intel?are expected to decline compared to the previous year. According to market research firm Omdia, Samsung Electronics' revenue is projected to shrink from $20.958 billion (approximately 30 trillion KRW) in Q3 last year to $18.29 billion (approximately 26.15 trillion KRW), Intel's from $18.786 billion (approximately 26.9 trillion KRW) to $15.04 billion (approximately 21.5 trillion KRW), and Micron's from $7.84 billion (approximately 11.2 trillion KRW) to $4.25 billion (approximately 6.1 trillion KRW). Notably, Samsung Electronics' semiconductor revenue, including foundry, in Q3 this year is estimated to be smaller than TSMC's ($20.2 billion, approximately 28.9 trillion KRW).

Investors are turning away from semiconductor companies. Over the past year, Samsung Electronics listed on the KOSPI market has dropped -20.6%, SK Hynix -5.1%, TSMC listed on the Taiwan stock market -34.4%, and Intel and Micron listed on the U.S. NASDAQ market have fallen by -53% and -22.3%, respectively. The Philadelphia Semiconductor Index, composed of 30 U.S.-listed semiconductor companies with a market capitalization of over $100 million (approximately 14.28 billion KRW), closed at 2237.74 on the 19th (local time), down 33.7% from a year ago. Although the main component suppliers and customers differ among major companies, various indicators show that the overall market is caught in demand decline and price drop risks due to the economic downturn.

Given this situation, Intel is expected to lay off thousands of employees around its earnings announcement scheduled for the 27th (local time). Approximately 20% of employees in some departments such as sales and marketing are expected to be affected by this restructuring, which could reduce costs by up to $30 billion (43 trillion KRW) through workforce reduction.

Samsung Electronics DS (Semiconductor) Division Hwaseong Campus. (Photo by Samsung Electronics)

The technological competition among semiconductor companies enduring this harsh winter is expected to intensify further. Since the semiconductor industry is both an equipment industry requiring large-scale investment and a demand industry with rapidly fluctuating business cycles, the most certain way to stay ahead is mass production of high-quality new products. The situation is so serious that the U.S. government enacted the Inflation Reduction Act (IRA), which has been criticized for violating trade regulations to curb domestic inflation, forcing companies to bet their survival on definitive new products that can outcompete rivals.

Memory semiconductor companies such as Samsung Electronics and SK Hynix are engaged in a "super-gap technology competition" to expand the speed and storage capacity of next-generation memory chips, Double Data Rate 5 (DDR5), and next-generation interface Compute Express Link (CXL), while awaiting the release of next-generation CPUs "Zen 4" and "Sapphire Rapids" from AMD and Intel, who dominate the high-value server CPU market.

In the long term, industrial restructuring toward system semiconductors (non-memory semiconductors), which have higher profitability than memory semiconductors, is urgently needed. Especially Samsung Electronics, which is memory semiconductor-centric, plans to focus on nurturing system semiconductors to narrow the market share gap with TSMC, which holds a majority share in the foundry sector. The prevailing view is that TSMC's relatively higher profitability despite stock price declines is due to its successful industrial advancement focused on foundry.