[Peace&Chips] Samsung Electronics and SK Hynix: High-Value Market Opens If They Withstand the Cold Wave

Samsung and SK Hynix Announcements This Week
Semiconductor Slump Clouds Earnings Outlook
DDR5 Raises Expectations in Memory Market

Editor's NoteSemiconductors, known as the rice of modern industry. Although it's a term we hear every day, it's hard to explain when asked. Peace & Chips will make the complex concepts and overall industry trends of semiconductors easy to digest for you. Just place your spoon on it.

[Asia Economy Reporter Kim Pyeonghwa] Finally, it's semiconductor earnings week. Samsung Electronics and SK Hynix will announce their full-year results including Q4 on the 31st and the 1st of next month, respectively. Both companies are expected to report a decline.

Samsung Electronics already released preliminary results on the 6th. Their Q4 sales last year dropped 8.5% year-on-year to 70 trillion KRW, and operating profit plunged 69% to 4.3 trillion KRW.

Although detailed earnings by business segment were not disclosed, semiconductor operating profit may have fallen more sharply than overall operating profit. The securities industry even predicts that Q4 semiconductor operating profit dropped to the billion KRW level. KB Securities forecasted 300 billion KRW, which would mean a 97% decrease compared to the same period last year (10.06 trillion KRW).

SK Hynix is expected to return to a loss. According to financial information provider FnGuide, SK Hynix's Q4 sales forecast for last year is 8.2763 trillion KRW, down 33% from the same period last year. The operating loss forecast is 1.1154 trillion KRW.

The earnings decline for both companies began in Q3 last year. As the global economy worsened, a cold wave hit the semiconductor market, affecting corporate earnings. With semiconductor inventories increasing in the market, price drops became inevitable, reducing companies' profits.

In particular, memory semiconductors, which are the main focus of domestic companies, are relatively sensitive to economic conditions. Related earnings inevitably shrank significantly. According to recent data released by market research firm Gartner, while global semiconductor sales increased by 1.1% last year, memory sales decreased by 10%.

The semiconductor market downturn is expected to continue into this year. Naturally, it will be difficult for companies to show earnings growth. However, there is a forecast that inventories may decrease from the second half of the year, as major memory companies like SK Hynix and US-based Micron are reducing semiconductor chip production.

Additional profit generation in the memory industry is also a hopeful factor. Researcher Noh Geun-chang from Hyundai Motor Securities predicted, "With Intel's Sapphire Rapids launch, demand for server Double Data Rate (DDR) 5 will increase from Q3."

Intel 4th Generation Xeon Scalable Processor, known as 'Sapphire Rapids' /
[Image provided by Intel]

DDR5 is the latest standard for memory semiconductors, specifically DRAM. It is 30% more profitable than previous products. DDR5 DRAM is not yet widely used, but when the latest server CPU, Sapphire Rapids, hits the market, it will be used together, significantly increasing demand. This opens a high value-added market.

After enduring the cold wave, the long-term market outlook is positive. Market research firm Omdia expects the overall semiconductor market to grow at an average annual rate of 5.8% from 2021 to 2026, while the memory market is expected to grow by 6.9%. In particular, the growth of another memory product, NAND flash, is notable.

This article is from [Peace & Chips], published weekly by Asia Economy. Click subscribe to receive articles for free.

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