[Peace&Chips] This Company That Surpassed SK Hynix After 9 Years... Is the Secret Clearing Inventory?

Micron Gains Attention in Semiconductor Industry Last Week
Surpasses SK Hynix to Rank 2nd in Q1 DRAM Market
DRAM Shipment Timing Affected by Inventory Adjustment During Recession

Editor's NoteSemiconductors, often called 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 trends of the semiconductor industry easy to digest. Just bring your spoon.

Last week was no exception when it came to semiconductor issues. If we had to pick one key keyword, it would be 'Micron.' This is because China restricted the purchase of Micron products within the mainland on the 21st. Micron was also the company that showed the most significant change in the Q1 DRAM market statistics announced on the 25th. This was thanks to a reversal of fortunes not seen in nine years.

Micron is an American memory semiconductor company. DRAM accounts for more than 70% of its total sales, which is a higher dependence on DRAM than SK Hynix (around 60%). In the DRAM market dominated by the top three companies, Micron has held the third position behind Samsung Electronics and SK Hynix, but this time it surpassed SK Hynix to take second place.

According to statistics released by market research firm TrendForce, Samsung Electronics and SK Hynix saw a decrease in shipments and sales compared to the previous quarter, resulting in a drop in market share in Q1. On the other hand, Micron increased shipments, reduced the decline in sales, and raised its market share. How did they manage to increase shipments amid the semiconductor market downturn?

Exterior view of the Micron building in Texas, USA / Photo by Micron

Industry insiders explain that attention should be paid to the cyclical nature of the semiconductor sector. The semiconductor market flows with waves of recession, recovery, and growth. During downturns like now, shipments often increase due to inventory depletion. The timing and method of clearing accumulated inventory can change market share.

As everyone knows, DRAM prices have been declining steadily since the market downturn in the second half of last year. The fixed transaction price (contract price between companies) for PC DRAM (DDR4 8Gb), which is mainly used in the market, was $1.45 last month, down 43% from the same month last year. Although all three major DRAM companies are cutting production, weak demand has led to historically high inventory levels.

Companies face a choice at this point: whether to sell at a loss to reduce inventory when selling prices are below production costs or to hold onto the inventory. If inventory is kept and expected to be sold below cost, it can result in an inventory valuation loss on the financial statements, lowering company profitability.

Applying this to the current situation, Micron may have judged that selling inventory in Q1 was better than holding it. Conversely, Samsung Electronics and SK Hynix may have thought it more advantageous not to sell. "Each company has different annual business strategies and situations at specific times, so the timing of inventory depletion varies," they say.

There is also an assessment that Micron's cost burden may have been lower than domestic companies because it has not yet used extreme ultraviolet (EUV) lithography equipment when producing the latest DRAM products. EUV equipment is used to etch fine circuits onto the wafer, the original substrate, and one piece of equipment can cost several hundred billion won, making it very expensive.

Additionally, Micron's change in the timing of mobile DRAM shipments may have had an impact. Micron announced in its Q2 fiscal year 2023 (February to April 2023) earnings report that mobile division sales increased by 44% compared to the previous quarter. "This was thanks to adjusting the shipment timing of some products between Q1 (December 2022 to January 2023) and Q2 of the fiscal year," they said.

Industry experts say it is necessary to observe whether this market change is meaningful or a one-time event. They also emphasize the need to carefully examine additional DRAM market statistics in the future. Detailed figures inevitably vary depending on how each market research firm analyzes the market.

For example, in Q4 last year, TrendForce reported that Samsung Electronics held a 45.1% share, SK Hynix 27.7%, and Micron 23.0% of the DRAM market. However, another market research firm, Omdia, reported for the same period that Samsung Electronics had 42.7%, SK Hynix 27.0%, and Micron 25.9%. There was a difference of over 2 percentage points in the shares of Samsung Electronics and Micron. Experts advise, "We need to carefully watch the statistics for the next two or three quarters to properly understand market trends."