Will storage prices continue to fall? This is the Yangmou of Samsung

In February 2019, the storage chip giant SK Hynix said that it would invest more than US $100 billion to build four new wafer plants after 2022. A spokesman for SK Hynix said: “This is a long-term investment plan. Our strategy may change according to market conditions.”
The plan is still on hold. In the last three months of 2022, SK Hynix suffered its first quarterly loss in ten years, which is also the largest quarterly loss in history. In the financial report of the fourth quarter of 2022, SK Hynix’s revenue fell 38% to 7.69 trillion won and its loss reached 1.7 trillion won (about 1.4 billion dollars). SK Hynix said that as the uncertainty still exists, the company will stick to the plan of halving capital expenditure in 2023.https://www.stoneitech.com/
Storage chip companies have not experienced the downward cycle of the industry. The last downward cycle that affected the industry pattern was in 2007. Before that, the Vista system launched by Microsoft had a greater demand for memory, and the major storage manufacturers have expanded their production. However, the failure of Vista led to the supply far exceeding the demand, and the DRAM memory price declined all the way. By the outbreak of the global financial crisis in 2008, the market price was even lower than the material cost price, which completely changed the industry pattern.
In the past year, the storage chip industry has experienced excess inventory, reduced orders and sharp price drop. In 2022, the DRAM price fell from the beginning of the year to the end of the year. According to the Chibang TrendForce survey, the contract price fell by more than 10% each quarter in the second half of the year. Another memory chip giant Meguiar said that the industry was experiencing the most serious imbalance between supply and demand after the 2008 financial crisis.
In the new year, the situation continues to deteriorate.
The long winter night of memory chips continues
According to the prediction of the World Semiconductor Trade Statistics Association (WSTS), the global memory chip market will fall by 17% in 2023. Bloomberg also predicted that the operating losses of major memory chip manufacturers will reach a record $5 billion this year, and the entire industry is experiencing a historic collapse.
Now, every memory chip produced by SK Hynix, Micron, Samsung and other memory chip manufacturers means losing money.
In addition to SK Hynix, manufacturers such as Meguiar, South Asia, and Kaixia have also announced response plans aimed at carrying out production cuts and other spending reduction actions, in an effort to survive this round of “cold winter”.
According to the first quarter financial report of the 2023 fiscal year released by Meguiar, the company’s revenue dropped by 47% year-on-year to $4.09 billion. Sanjay Mehrotra, CEO of Meguiar, predicted that until the end of 2023, the company’s profitability would still be challenged. Therefore, in addition to reducing production and investment, it would also take actions such as layoffs of 10% (about 4800 people), executive pay cuts, suspension of 2023 bonus, etc. to reduce expenditures.
In the fourth quarter of last year, South Asia’s revenue fell below the NT $10 billion mark, down 27.8% year-on-year to 7.95 billion yuan, the worst record in a decade. South Asia expects the company to face losses for at least the next two quarters.
As one of the three giants of memory chips, Samsung is no exception.
On January 31, Samsung Electronics announced its financial results for the fourth quarter of 2022, with revenue down 8% and operating profit down 69% year-on-year. In addition to the decline of smart phone business, the biggest problem is concentrated in the semiconductor sector.
According to the financial report, the profit of the semiconductor division plummeted 97% to 270 billion won (219 million dollars) year on year. The Samsung semiconductor division is mainly composed of the OEM business unit and the memory chip business unit. Considering that the Samsung OEM business achieved the highest sales in history in the fourth quarter, the Samsung memory chip business is likely to be the same as other competitors:
Is experiencing losses.
In a conference call after the release of the financial results, Samsung Electronics explained that “due to the deterioration of consumer psychology, further decline in sales prices, and high inventory levels, performance has significantly decreased.” However, facing the same environmental deterioration, Samsung did not choose to join the production reduction team, preventing the memory price from continuing to decline.
“Barbarian” Samsung, online again
The reason why the storage chip manufacturers want to reduce production is not complicated. On the one hand, it is to reduce losses by reducing production. More importantly, it is to reduce market supply to prevent further decline in product prices. They have tried to reduce losses in the industry’s downward cycle, and even made a pot full by reducing production in the industry’s upward cycle.
In 2016, the rapid growth of memory demand for smart phones led to a general shortage of memory chips, and the price of memory rose with the tide. However, according to Business Korea, the sharp rise in memory prices at that time was not just a market factor. Samsung, Micron and other companies were also raising the price of DRAM through “artificial” and deliberate reduction in production.
In 2023, the storage chip manufacturers looked at their inventory and the market price that was still declining, and also thought of reducing production. Meguiar announced a 20% reduction in the production of DRAM and NAND Flash, and Kaixia announced a 30% reduction in the production of NAND Flash. Manufacturers also generally hope that Samsung “Big Brother”, the world’s largest memory chip manufacturer, can work together to avoid greater losses through collective production reduction.
Samsung did not let other manufacturers do. The profit contributed by the memory chip business usually accounts for about 50% of Samsung’s overall profit. It is the largest source of profit for Samsung, and it has been a long-term blood transfusion for other exploration businesses. Nevertheless, after the release of the financial report, Samsung again stressed that “there will be no artificial reduction in production”. At the same time, it will continue to build factories and increase its R&D investment in 2023.
The heart of Samsung is well known.
Since the new millennium, Samsung has successively defeated the German giant Qimonda and the Japanese “national team” Erbita by counter-cyclical investment again and again in the recession of DRAM memory market, and established its position as the global storage leader at one stroke.
Since 2022, the semiconductor industry has entered a downward cycle, and a number of giants have been hit hard. Samsung’s continued “overweight” is enough to further squeeze the survival space of the storage market and expand the possibility of merger or acquisition. Relying on its diversified business, Samsung is the only memory chip manufacturer that has not suffered from serious damage.
In addition, after Apple suspended the 128-layer NAND flash memory plan of Yangtze River Storage at the end of last year, all orders were transferred to a third-phase NAND flash memory project of Samsung in Xi’an. According to the Nikkei Asia report, it accounted for 40% of the NAND flash memory required for all iPhones. Before that, Samsung was also Apple’s largest DRAM supplier. This also gives Samsung more confidence:
Inverse period.
On the other hand, Samsung’s leading edge in storage technology has been shrinking in the past two years. MoneyDJ quoted the semiconductor industry as saying that the gap between its competitors and Samsung has narrowed to within six months. In the cold winter of the industry, when other giants collectively choose to “shrink”, Samsung chooses to increase its investment in research and development, which is also intended to re-extend its technological leadership.
Write at the end
Before the Spring Festival in the Year of the Rabbit, the widespread decline in year-end bonuses has caused many people to be deeply hurt. As a positive representative of a small number, employees in Samsung Electronics’ semiconductor business can receive annual performance bonuses of 50% of their annual salary.
In fact, even at the worst time of performance, SK Hynix also chose to give full year-end bonus. According to the report of Yonhap quoted by Jiwei.com, the industry revealed that SK Hynix announced to the company on February 1 that the excess profit distribution of last year’s operating performance was determined to be 820% of the standard salary (41% of the annual salary) and paid to employees before February 3.
SK Hercules said: “In order to compensate for the achievements of our efforts, we decided to continue to cooperate with one mind in an unprecedented decline, overcome the crisis and achieve a greater leap. We hereby encourage this.”
However, under the pressure of Samsung, it is difficult to say whether SK Hynix can continue to “encourage” at this time next year.