[Peace&Chips] Semiconductor Industry Awaiting Spring... Will It End the 4th Quarter on a High Note?

Samsung and Hynix Accumulate Deficits of Over 20 Trillion Won This Year
Mixed Outlook Amid Complex Industry Downturn Factors

Samsung Electronics Expected to Return to DRAM Profit in Q4
SK Hynix Deficit Projected to Decrease by Around 100 Billion Won

This year, the semiconductor industry experienced a tumultuous year. After the semiconductor market began to decline in earnest in the second half of last year, Samsung Electronics and SK Hynix recorded negative earnings this year, clearly reflecting the industry's situation. The cumulative losses for the first three quarters of this year for Samsung Electronics' DS Division (semiconductors) and SK Hynix reached 12.69 trillion KRW and 8.076 trillion KRW, respectively.

During the downturn period, which was even described as an ice age beyond a harsh winter, semiconductor companies faced many challenging factors. Unlike in the past, there were numerous variables affecting the semiconductor market. In addition to market factors such as economic recession, interest rate hikes, and weak IT demand, there were many difficulties caused by the Russia-Ukraine war and China market regulations due to US-China conflicts.

As a result, there were many differing forecasts for the semiconductor market. While there was no disagreement that an upcycle would eventually come due to the cyclical nature of the semiconductor industry, opinions varied on the timing of the market recovery. This is why industry insiders expressed that "even company executives find it difficult to predict the next quarter." Companies responded strongly by choosing production cuts to reduce the growing semiconductor inventory under these circumstances.

A ray of light in the chilly semiconductor market was 'High Bandwidth Memory (HBM)'. With the ChatGPT craze, demand for artificial intelligence (AI) surged, leading to a rapid increase in demand for HBM, a memory semiconductor for AI. SK Hynix increased supply of high-value-added DRAM such as HBM and Double Data Rate (DDR)5, resulting in a return to profitability in the DRAM sector in the third quarter.

The situation is expected to improve further in the fourth quarter. The securities industry forecasts that Samsung Electronics will follow SK Hynix in turning a profit in DRAM during this quarter. Specifically, the estimated DRAM profit is expected to reach 784 billion KRW (Hi Investment & Securities), 800 billion KRW (Hana Securities), and 1.12 trillion KRW (Eugene Investment & Securities). In this case, the total operating loss for the DS Division this year will decrease to the 11 trillion KRW range.

SK Hynix is also expected to reduce its overall losses while increasing DRAM earnings. According to statistics from financial information provider FnGuide, the operating loss forecast for SK Hynix in the fourth quarter, as projected by securities firms over the past three months, is 275.2 billion KRW. Narrowing the forecast to within one month, the estimated operating loss further decreases to 167.7 billion KRW. This indicates growing market recovery expectations toward the end of the year.

As the saying goes, the deeper the valley, the higher the mountain. We hope that the semiconductor industry will enjoy a clear spring next year, commensurate with the difficulties it faced this year.

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 for you. Just bring your spoon.