[Peace&Chips] Confirming 'Bottom Theory' in Second Half... Expecting Memory Performance Next Year

Micron, Samsung Electronics, and SK Hynix
Q3 Memory Industry Results Fuel Bottoming-Out Theory
Profit Turnaround Expected Next Year... Growing Optimism for Memory Performance

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 place your spoon and enjoy.

Following the recent announcement of Micron's Q4 (June-August) results for fiscal year 2023, Samsung Electronics also released its preliminary Q3 results last week, strengthening the theory that the memory semiconductor market has hit bottom. This is because active production cuts in the memory industry have reduced inventory in the market and increased demand for high-value-added products, leading to changes in the performance of major companies.

Micron recorded an operating loss of $1.472 billion in Q4, reducing the deficit by 16.41% compared to the previous quarter. For Samsung Electronics, since the preliminary results are estimates by business division, the securities industry expects an operating loss in the range of 3 trillion KRW. This suggests that the deficit has narrowed compared to the 4 trillion KRW operating losses recorded in Q1 and Q2.

SK Hynix, which will announce its Q3 results on the 26th, is also expected to have reduced its losses. The average operating loss forecast from the securities industry, compiled by financial information provider FnGuide, is 1.6608 trillion KRW. This would mean a reduction of over 1 trillion KRW in operating losses compared to the previous quarter (2.8821 trillion KRW). Moreover, this forecast average is based on estimates from the past three months, and when narrowed down to the last month, the average forecast is 1.6036 trillion KRW, indicating an even smaller expected deficit.

The market expects that with the prices of memory products such as DRAM and NAND flash rising in Q4, a full-fledged recovery in the memory industry's performance will begin. Market research firm TrendForce predicted that the average selling prices (ASP) of DRAM and NAND in Q4 could increase by 3-8% and 0-5%, respectively, compared to the previous quarter. Next year, with limited memory supply and increased demand due to market recovery, the industry's profit growth could be significant.

In fact, market research firm IDC forecasts that next year's memory market sales could reach $82.7 billion, a 16.4% increase from this year. The DRAM market is expected to grow by 17.3%, and the NAND market by 14.8%. Although estimates vary slightly among market research firms, there is consensus that the memory market recovery will be clear.

The securities industry's outlook on next year's performance of Samsung Electronics and SK Hynix, leaders of the global memory market, is also optimistic. For Samsung Electronics' memory division, forecasts suggest operating profits of at least 1 to 2 trillion KRW next year. Mirae Asset Securities (7.2 trillion KRW) and Daol Investment & Securities (7.292 trillion KRW) even project profits in the 7 trillion KRW range.

Kim Dong-won, a researcher at KB Securities, said, "Next year, DRAM and NAND prices are expected to rise by 39% and 24%, respectively, compared to last year," adding, "Samsung Electronics' semiconductor (DS division) operating loss is expected to turn around from a 15 trillion KRW deficit this year to 12 trillion KRW next year."

Graph related to semiconductor and global growth indicators. The part shown with a black line represents the annual semiconductor market growth rate, including forecasts. Due to the cyclical nature of the industry, the market growth rate fluctuates in waves. / [Image source=Market research firm IDC 'Semiconductor Market Outlook' report]

SK Hynix is also expected to return to profitability next year. Although estimates vary by securities firms, recent operating profit forecasts suggest a range of 4 to 5 trillion KRW. Some firms, such as Yuanta Securities (8.236 trillion KRW), even believe it could surpass the 2022 operating profit of 7 trillion KRW.

Kim Un-ho, a researcher at IBK Investment & Securities, said, "SK Hynix has secured an absolute position in high-end (advanced) DRAM, and next year will be a period of increased volume," adding, "HBM3E market share and volume growth will be key variables in next year's performance." HBM3E is the latest high-bandwidth memory (HBM) product, a high-value-added DRAM used for artificial intelligence (AI).

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

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