Continued Price Decline of DRAM and NAND Flash Amid Sharp Drop in Demand
[Asia Economy Reporter Kwon Haeyoung] Due to the global economic slowdown, demand for memory semiconductors has sharply declined, leading to forecasts that price drops will continue through the first half of this year. As the semiconductor market is expected to endure a 'harsh winter,' the industry faces fierce survival competition, including production cut battles.
The Wall Street Journal (WSJ) on the 30th (local time) cited predictions from Taiwanese market research firm TrendForce, forecasting that the average prices of memory semiconductors, DRAM and NAND flash, will show double-digit declines in the first quarter of this year. According to TrendForce, DRAM prices are expected to fall by 20% in Q1 and 11% in Q2 this year. NAND flash prices are also projected to drop by 10% and 3% respectively during the same period.
DRAM and NAND flash prices already fell by 23% and 28% respectively in Q4 last year, and this price weakness is expected to persist into the first half of this year. Memory semiconductors are widely used in electronic products such as smartphones, PCs, and servers, and are considered a barometer of the semiconductor market.
The price decline in semiconductors was largely influenced by the rapid global economic freeze caused by major countries, including the U.S., raising interest rates to curb inflation triggered by the Ukraine war. Bloomberg diagnosed that the memory semiconductor inventory currently stands at a record high of 3 to 4 months' supply, indicating the industry is in an unprecedented recession. Avril Wu, Senior Vice President of TrendForce, stated, "Due to inflation, high interest rates, and a fragile economy, demand from companies and individuals for smartphones, PCs, and data servers equipped with memory semiconductors will continue to decline."
To mitigate the impact of the semiconductor downturn, companies like SK Hynix and Micron have already begun implementing production cut plans. As memory semiconductor demand slows and inventories accumulate, they are adopting a determined stance to reduce both semiconductor production and investment.
Micron plans to cut DRAM and NAND flash production by more than 20% and reduce capital expenditures by over 30% this year. They have even taken drastic measures to reduce their workforce by 10%. SK Hynix also announced during its Q3 earnings conference call last year that it would cut investment by more than 50% this year and reduce production focusing on low-profit products.
Samsung Electronics has stated that there are no artificial production cuts yet. However, attention is focused on whether they will unveil production cut measures following their earnings announcement. Samsung Electronics' semiconductor (DS) division operating profit for Q4 last year plunged 96% year-on-year to 270 billion KRW, barely avoiding a loss. Until now, Samsung Electronics has maintained a strategy of continuing investment even during economic downturns to secure market leadership during recovery periods, but there is analysis suggesting this time might be different.
Some cautiously suggest the possibility of a rebound in memory semiconductor prices in the second half of this year. While DRAM still requires large-scale production cuts, NAND flash is expected to rebound in the second half of the year as the industry quickly moves to reduce supply. David Tsui, an analyst at Standard & Poor's (S&P), forecasted, "If consumer demand for smartphones and other products recovers due to China's reopening, global semiconductor demand could revive by the end of the year."
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