Memory Prices Declined Again This Year
Samsung and Hynix Profit Outlook Remains Weak
Samsung Chooses Workaround Over Artificial Production Cuts
[Asia Economy Reporters Kim Pyeonghwa, Park Seonmi, Han Yeju] As the severe semiconductor cold wave continues and memory prices keep falling, industry earnings are also shrinking. This is the background behind major players choosing production cuts by reducing wafer supply to curb the oversupply causing the price drop. Samsung Electronics aims for actual production cut effects through line maintenance and equipment relocation rather than artificial production cuts.
January DRAM Fixed Transaction Price Down 18%
Market research firm DRAMeXchange announced on the 31st that the average fixed transaction price of PC DRAM general-purpose products (DDR4 8Gb 1Gx8) in January recorded $1.81, down 18.10% from the previous month. After plunging 22.46% to $2.21 in October last year, prices have fallen sharply again.
The average fixed transaction price of NAND general-purpose products for memory cards and USB (128Gb 16Gx8) in January was $4.14, unchanged from the previous month. After prices continuously dropped from June to October last year, no signs of rebound have been found. Fixed transaction prices refer to contract transaction amounts between semiconductor manufacturers and IT companies and are considered a key indicator of the semiconductor market situation.
The market expects memory prices to continue falling this year. Although prices were adjusted downward once due to last year's sluggish market conditions, the bottom has not yet been reached. Market research firm TrendForce forecasts that DRAM and NAND prices will fall by 20% and 10%, respectively, in the first quarter. A further 11% price drop for DRAM is expected in the second quarter.
Samsung Electronics Also Forecasted to Post Losses Following SK Hynix
The continuous decline in memory prices is related to increasing inventory. IT demand has decreased due to the global economic downturn, but supply has continued, causing inventory to accumulate in the market. Bloomberg assessed the current inventory level as the worst ever. It also explained that inventory has surged more than threefold compared to before, accumulating 3 to 4 months' worth of stock.
As memory prices fall, industry profitability is also deteriorating. The performance deterioration of domestic and foreign companies that began in the third quarter of last year continued into the fourth quarter. Samsung Electronics announced on the 31st that its semiconductor (DS Division) operating profit for the fourth quarter of last year was 270 billion KRW, a sharp drop of 96.94% compared to the same period last year. The memory business in the DS Division is expected to turn to a loss.
SK Hynix, which will announce its results on February 1, is expected to report an operating loss for the first time in 10 years. According to the average securities firm forecast compiled by financial information provider FnGuide, SK Hynix's fourth-quarter operating loss is expected to be 1.2105 trillion KRW. Sales are also expected to decrease by 34.42% to 8.1166 trillion KRW.
Securities firms predict that both companies' earnings will decline again this year. Major securities firms such as KB Securities and Hyundai Motor Securities expect Samsung Electronics to record losses in the memory business in the first and second quarters. Mirae Asset Securities predicts that SK Hynix will continue to post losses throughout this year.
Ongoing Production Cut Wave... Samsung Electronics Chooses a Detour
TrendForce believes that to stop the downward trend in memory prices, industry-wide expansion of production cuts is necessary. Previously, major players announced investment reductions and production cut plans last year. SK Hynix decided to reduce investment by more than 50% compared to the previous year and cut production focusing on low-profit products. US-based Micron and Japan's Kioxia also announced plans to cut production by 20% and 30%, respectively, this year.
On the other hand, Samsung Electronics maintains its position of no artificial production cuts such as adjusting wafer input volume. Instead, it has left open the possibility of actual (technical) production cuts. Kim Jaejun, Vice President of Samsung Electronics Memory Business Division, said, "To achieve the highest quality and optimize line operation, we are strengthening production line maintenance and equipment relocation and efficiently promoting the transition to advanced nodes (processes). In this process, a meaningful short-term bit (production volume) impact is inevitable."
However, from the perspective of long-term demand, "This year's CAPEX (capital expenditure) will be at a level similar to last year," he explained. He also predicted, "We are expanding the proportion of engineering to strengthen process technology competitiveness and early stabilization, and the R&D (research and development) portion within CAPEX is expected to increase compared to before."
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