Weakness in semiconductor memory market intensifies

International Business News – The deterioration of the semiconductor memory market is intensifying. Each memory maker such as SK Hynix in South Korea fell into losses from October to December 2022. Downward pressure on prices is continuing as semiconductor inventories increase due to slowing demand from smartphones and other effects. Previously, it was believed that the semiconductor market would maintain stable growth against the backdrop of continued increase in data volume, but the cyclical deterioration in the market has not yet been overcome.

The business environment for memory is deteriorating rapidly. South Korea’s Samsung Electronics’ semiconductor business saw a 97% year-on-year decline in operating profit from October to December 2022 over the same period. SK Hynix and Armor Man Holdings, among others, also posted operating losses.

“The largest decline since 2008.”

The reason is falling memory prices. In Samsung’s case, the price of DRAM, which is used for temporary storage, fell by more than 30 percent from October to December 2022 compared to July to September 2022, while the price of NAND flash memory, which is used for long-term storage, fell by nearly 30 percent. SK Hynix Chief Financial Officer Kim Woo-hyeon also said, “The price drop has been the biggest since 2008.”

According to Taiwan research firm Tiburon Consulting (Trend Force), memory prices have turned to a downward trend since July to September 2022, with October to December 2022 plunging 20-25% compared to July to September. It is expected that January to March 2023 will also see a decline of more than 10%.

The World Semiconductor Trade Statistics (WSTS) market forecast (in terms of value) released in November shows that the memory market will decrease by 12.6% in 2022 and 17% in 2023. The logic semiconductor market will decrease by 2% year-over-year in 2023, and the semiconductor market in 2023 will be lower than the previous year for the first time since 2019 (12% decrease).

The boom-and-bust cycle that the semiconductor industry has maintained for decades has shortened, and steady growth will continue – an optimistic narrative that emerged in the latter half of the 2010s. The view was that as the amount of data needed for smartphones and data centers increases, the demand for semiconductors needed for processing and storage will increase in tandem.

The amount of data circulating globally itself is continuing to increase. U.S. research firm IDC projects in 2022 that global data generation will reach 221 ZB (1 ze is equivalent to 1 billion times 1 trillion) by 2026, increasing to more than twice the amount in 2022. It will reach 175 ZB in 2025, increasing at a rate that exceeds the 2018 forecast. The market for servers used in data centers, etc. will grow 3% year-on-year in 2023, which is expected to sustain growth, although temporarily slowing down compared to 2-digit growth.

This will be even more pronounced if the criteria is changed to “capacity” for storage, etc. According to data from Tiburon Consulting, flash memory shipments by storage capacity (bit) will grow 29.8% in 2022 and 20.6% in 2023. The past five years to maintain the annual rate of growth of about 30%.

Semiconductors themselves have been decreasing in unit price per unit of performance as technology advances. If the performance increases with the microfabrication of the circuit, etc., even with the same semiconductor, the calculations are faster and the amount of information that can be stored continues to increase. In addition to competition from companies, the level of demand-side requirements is also increasing, and semiconductor prices will not rise by the same amount as the increase in performance.

In the case of memory, for example, the unit price per unit of storage capacity will fall. Data from Japanese research firm Techno Systems Research shows that the cost of 1GB of solid-state drives (SSDs) using flash memory falls to $0.107 as of 2022, less than half of what it was in 2018.

Difficult to reduce supply

If demand increases faster than prices fall, it will push up the semiconductor market. However, the balance between supply and demand has clearly disintegrated since the second half of 2022. In particular, shipments of smartphones, which account for about 40% of total memory demand, have decelerated significantly, with global smartphone shipments reaching 1.359.8 million units in 2021 and decreasing by 11% by 2022 due to the deterioration of the Chinese economy, among other reasons, according to IDC.

In the face of a rapid slowdown in final demand, production has not kept pace with the production of semiconductors that take several months to manufacture. In the semiconductor industry, the memory field has not been monopolized and has a difficult aspect to reduce supply. During this period, the inventory of trading companies and customers increased, and semiconductor products that were temporarily oversupplied faced strong downward pressure on prices.

Various memory makers forecast that “inventory levels crossed the peak from January to March and the second half of the year will see an improvement in supply and demand” (SK Hynix). If the adjustment of customers and inventory comes to an end and shipments increase, the market size will also turn to a recovery trend.

The stock market is also starting to bet on the improvement of the memory depression. The share prices of each semiconductor maker bottomed out at the end of 2022 and entered a recovery trend. Samsung’s stock price on March 8 was up 9% from the end of 2022, and SK Hynix was up 16%. However, they are still at the level of 2 to 3 percent down from the end of 2021, and are at the stage of watching when the semiconductor market will return to balance.

The revival of final demand such as smartphones is swayed by the macro economy. The head of the semiconductor-related companies said that the decline in the semiconductor market “has reached a scale that has never been experienced so far” and the uncertainty of the future is still prominent. Against the backdrop of an increase in the scale of investment required for technology development and the start-up of mass production processes, the management choices of semiconductor manufacturers will become increasingly difficult if the deterioration in performance continues.