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Samsung Electronics and SK Hynix may be enjoying a rebound through production cuts after recording trillions of won in losses due to falling semiconductor prices in the first quarter of this year, but semiconductor prices are forecast to take a further hit in the second quarter. The global economic contraction has made it difficult to expect such production cuts to have a large impact in the first half of the year, painting a gloomy picture for the second-quarter earnings of Korean semiconductor companies.

Taiwanese market research firm TrendForce released an analysis on Thursday that predicted the price of DRAM will fall by 13%-18% in the second quarter of the year. The prognosis for the price of NAND flash was a further 8%-13% drop.

In late March, TrendForce predicted price drops of 10%-15% and 5%-10% for DRAM and NAND flash, respectively, but downgraded its predictions a mere month later. The trend of falling prices continued as the quarter-on-quarter price of DRAM fell 20% in the first quarter of this year, while the figure was 10%-15% for NAND flash.

The largest movement was in the price of DRAM used in servers, with a drop of 18%-23% (based on DDR4). Although production of semiconductors for servers has increased as a result of expansion in the AI cloud industry, the decline is believed to be caused by inventories piling up as Chinese companies, a major customer base, have postponed investment in servers due to economic stagnation.

The price of DRAM for PCs and mobile phones is also forecast to fall by up to 18% due to reduced consumption of electronic devices. Demand for DRAM last year came in at 23.4 billion gigabytes (as calculated by Eugene Investment & Securities), a 2% reduction over the previous year. The unprecedented decline in market demand for DRAM has led to ballooning inventories of semiconductors since last year.

Some believe the semiconductor market may bounce back after bottoming out in the second to third quarter of this year. It will take between three and six months for Samsung Electronics’ production cuts to impact the market, and demand for semiconductors may pick up in the second half of this year in light of the two- to four-year replacement cycle for electronic devices.

In a report titled “Macroeconomic Impact of Trends in the Semiconductor Market,” Korea Development Institute (KDI) researcher Jo Ka-ram wrote, “The dual decline in demand for computers and mobile devices has contributed to stagnation in the semiconductor market.”

“Considering the fact that demand for computer and mobile phones greatly increased in the second half of 2019 and 2020, there is a possibility that demand will rebound in the latter half of 2023 when the replacement cycle comes around,” she predicted.

The continued decline in the price of semiconductors has led to gloomy forecasts for the second-quarter earnings of Samsung Electronics and SK Hynix. Hi Investment & Securities has forecast Samsung to post an operating loss of 1.286 trillion won in the second quarter.

Although Samsung was narrowly able to avoid a first-quarter loss (operating profit of 640.2 billion won) thanks to the success of the Galaxy S23 smartphone model in spite of a 4.6 trillion won deficit in the semiconductor division, forecasters say this could deteriorate further. The scale of losses for SK Hynix, which recorded an operating deficit of 3.4 trillion won in the first quarter, is also predicted to rise.

Samsung and SK Hynix plan to prepare for future demand by further cutting the production of products that will continue to fall in price, such as DDR4, while boosting investment in the DDR5 model that comes equipped with high bandwidth memory and high specifications. The two companies hope to enjoy a semiconductor boom again next year by focusing investment on the production of high-performance semiconductors that are likely to see increased demand due to the spread of AI services such as ChatGPT.

By Ock Kee-won, staff reporter

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