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Samsung Electronics, the world’s largest maker of memory chips, announced last Friday that it would cut memory chip production after it reported Q1 profit that was the smallest in 14 years. South Korea’s largest company had previously resisted cutting production in an attempt to gain market share from rivals SK Hynix and Micron Technology (MU), which had both been forced to cut output. Samsung’s cuts could help boost memory chip prices, a critical step for the industry’s recovery.
The Covid pandemic has whipsawed the semiconductor industry. Demand for memory chips soared during the pandemic as consumers locked down at home bought new computers and smartphones. However, the trend reversed as the pandemic eased and the global economy suffered economic shocks from soaring inflation and rising interest rates.
Prices of DRAM, a type of memory chip used to process data, are expected to fall around -10% in Q2 after falling -20% in Q1 and slumping more than -30% in Q4 of last year, according to Yuanta Securities. Weak global demand has created a supply glut for memory chips that has depressed prices. On Monday, Taiwan Semiconductor Manufacturing, the world’s biggest contract manufacturer of chips, said it missed sales estimates for the second consecutive quarter in a sign of continued weakness in electronics demand.
The near-term outlook for chip demand appears weak. SK Hynix, a supplier of chips to Apple, is expected to post a net loss in each quarter of the 2023 fiscal year. However, Daishin Securities said there’s a high probability of a rebound in memory chip prices in the second half of this year, and “we believe there will be a shortage of memory chips in 2024.”
Shares of Micron Technology, the largest U.S. maker of semiconductor chips, and Western Digital (WDC) both rallied more than +8% since Samsung Electronics announced last Friday that it would cut memory chip production. Citigroup said, “A cut by Samsung is a huge positive for the DRAM industry and, when combined with Micron and SK Hynix’s production and capex cuts, should help ensure a DRAM recovery in the second half of this year.”
However, not everyone is so sure of an immediate recovery. TrendForce said, “Slower-than-expected demand in the second half of 2023 will prolong the time required for inventory to get back to normal levels.”
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
