[2023 Semiconductor Outlook] Era of Contraction... Even the Trusted Foundry Faces 'Gloom'

Memory Market Oversupply... Prices to Fall Further in 2023
Even Trusted Foundries Face a 'Bleak' Outlook for Next Year

[Asia Economy Reporters Sunmi Park, Pyeonghwa Kim] The reality that the semiconductor industry will face in 2023 can be summed up in one word: 'contraction.' Market research firms unanimously predict that the global semiconductor market will shrink for the first time since 2019. With the market size expected to decrease by 3-5% compared to this year, a red light has turned on for the Korean economy, which has a high export ratio in semiconductors.

◆ Memory Market Oversupply... Prices to Fall Further in 2023 = Market research firm Gartner forecasted that global semiconductor sales in 2023 will decline by 3.6% from this year to $596 billion. Gartner initially expected continuous growth with global semiconductor sales at $595 billion in 2021, $618 billion in 2022, and $623 billion in 2023. However, due to worsening economic conditions and ongoing semiconductor oversupply, Gartner revised its forecast to a 3.6% contraction in sales next year. The expected sales growth rate for this year is 4%. Another market research firm, IC Insights, also expects next year's sales to decrease by 5% to $604.2 billion compared to this year. The World Semiconductor Trade Statistics (WSTS) organization projects a 4.1% decline to $556.5 billion.

Next year, the contraction in the memory semiconductor market, where Korean semiconductor companies hold strong positions, is expected to be significant. Memory semiconductors are markets where Samsung Electronics and SK Hynix hold the first and second largest global shares, respectively. For SK Hynix, over 90% of total sales come from memory semiconductors such as DRAM and NAND flash. Gartner expects DRAM sales next year to fall 18% from this year to $74.2 billion, and NAND flash sales to decrease by 13.7% to $59.4 billion. This is why estimates suggest that Samsung Electronics and SK Hynix's semiconductor sales will each drop by about 10 trillion KRW next year, to approximately 89 trillion KRW and 36 trillion KRW, respectively.

The decline in memory semiconductor sales began this year with DRAM. The global economy, rapidly deteriorating under uncertain conditions such as COVID-19, the Russia-Ukraine war, and the 'three highs' of exchange rates, interest rates, and inflation, has dampened consumer demand for IT devices, leading to severe supply-demand imbalances. The fixed transaction price of general-purpose PC DRAM products (DDR4 1Gb*8) steadily fell from $3.41 in January to $2.88 in July and $2.21 in November. Prices for NAND flash memory cards and USB general-purpose products (128Gb 16Gx8 MLC) also continued to decline, reaching $4.14 in November, down since June.

To resolve oversupply, production cuts are necessary, but while the memory market cycle has shortened compared to the past, the production lead time (time from order to delivery) has lengthened to over 120 days from wafer input to finished product. This means it is difficult to decide on production cuts based solely on short-term market conditions. Nam Daejong, an analyst at Ebest Investment & Securities, said, "The bottom of memory semiconductor prices will likely be confirmed around the third quarter of next year," adding, "Inventories of both DRAM and NAND are rapidly increasing, so demand could be weaker than previously expected."

◆ Even the Once-Reliable Foundry Market Outlook for Next Year is 'Bleak' = As the semiconductor market downturn centered on memory intensifies, the foundry market, which was relatively less affected by economic cycles, is also clouded with uncertainty. With reduced system semiconductor demand in the set industry, there are forecasts that difficulties due to decreased customer orders in the foundry sector may continue into next year.

The global economic outlook is indeed gloomy. The Bank of Korea's latest economic forecast report expects global economic growth next year to be 2.2%, down from 3.1% this year. DigiTimes Research, a market research firm under Taiwanese tech media DigiTimes, predicts that the foundry market sales will decrease by 2.3% next year compared to this year. DigiTimes Research's forecast for this year's foundry market sales is $137.2 billion (approximately 180.97 trillion KRW).

The market situation is already deteriorating. TSMC, the world's largest foundry company, is reducing fab utilization rates due to customer order cancellations. Gartner forecasts that global foundry utilization will drop to 86% in Q4 this year, down from 99.2% in the previous quarter. Market research firm TrendForce expects that the quarterly sales of the world's top 10 foundry companies will decline compared to the previous quarter.

Consequently, foundry companies are revising their business strategies. TSMC and Taiwan's UMC have lowered their capital expenditure (CAPEX) targets for this year. U.S.-based GlobalFoundries announced plans to cut business costs and reduce headcount. Domestic player DB HiTek had planned to expand its 8-inch production capacity this year but postponed the plan to next year. Samsung Electronics, the second-largest foundry chasing TSMC, intends to endure without artificial adjustments.

The industry expects market recovery in the second half of next year. Kang Moonsoo, Vice President of Samsung Electronics' Foundry Business Division, said during the Q3 conference call this year, "Due to the global economic slowdown in 2023, demand uncertainty is expected until the first half, but recovery is anticipated in the second half." However, he also expressed concerns, stating, "There is uncertainty about the prolonged macroeconomic downturn."