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Samsung, SK hynix face downside pressure amid falling chip demand

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Samsung Electronics' chip plant in Pyeongtaek, Gyeonggi Province / Courtesy of Samsung Electronics
Samsung Electronics' chip plant in Pyeongtaek, Gyeonggi Province / Courtesy of Samsung Electronics

By Baek Byung-yeul

Samsung Electronics and SK hynix, the nation's two semiconductor giants, are facing growing downside risks as chip demand will decrease due to shrinking consumer sentiment dampened by high inflation and recession fears, according to industry officials and analysts Wednesday.

They anticipate that the memory chip market in the second half of 2022 could be below market expectations as weak demand for semiconductors due to a decrease in consumption of PCs and smartphones is gradually spreading to servers, data centers and other industry sectors.

The warning signal can be seen from Micron, one of the three axes in the memory chip business along with Samsung and SK hynix. The U.S. chipmaker predicted on Aug. 9 that the sales forecast for the fourth quarter compared to the previous three-month period is expected to fall below its projection made at the end of June, which was between $6.8 billion and $7.6 billion.

Sanjay Mehrotra, CEO of Micron, said the chip market is worse than its prediction and the company is seeing weak demand spreading in the semiconductor sector.

"Compared to our last earnings call, we see further weakening in demand because of adjustments broadening outside of just consumers to other parts of the market including data centers, industrial and automotive," Mehrotra told Bloomberg Television.

As Micron predicts, the chip industry estimated that the bit growth of DRAM memory chips in 2023 will be historically low. Bit growth refers to the amount of chips produced and the figure is used as a barometer measuring the status of the semiconductor market. In a nutshell, higher bit growth means more demand.

SK hynix's plant in Icheon, Gyeonggi Province / Courtesy of SK hynix
SK hynix's plant in Icheon, Gyeonggi Province / Courtesy of SK hynix

Chip market tracker, TrendForce, recently said that "DRAM market demand bit growth will only amount to 8.3 percent in 2023, sub-10 percent for the first time in history, and far lower than supply-side bit growth of approximately 14.1 percent," adding that the DRAM market is "severely oversupplied at least in 2023 and prices may continue to decline."

Due to the weakening demand, both Samsung and SK hynix said they will "respond flexibly" to the outlook for the second half of this year, saying it is getting difficult to predict the market due to growing uncertainties.

Han Jin-man, executive vice president of Samsung, said in a recent conference call with investors that the company is "planning to maintain our stance of operating an optimized portfolio that centers on high-density, high value-added solutions based on supply flexibility in accordance with market conditions and customer needs, amid a highly volatile market situation."

Noh Jong-won, president and chief marketing officer of SK hynix, said in a recent conference call that the company "has no choice but to significantly adjust facility investment next year" adding that "the level of inventory in the memory chip industry and customers is increasing."

Lee Seung-woo, an analyst at Eugene Investment & Securities, said, "Mircon's further lowering of performance guidance figures means that slowing demand and inventory adjustment could spread beyond PCs and smartphones to cloud computing and other industries."

Due to warnings coming from all over the chip industry, the stock prices of Samsung Electronics and SK hynix fell 1.5 percent to 59,100 won and 3.47 percent to 91,800 won, respectively, Wednesday.

Baek Byung-yeul

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