Although major memory semiconductor companies such as SK Hynix and Micron have cut production, it has been found that inventories are still increasing. Analysts say that this is because the decrease in demand for semiconductors used in servers, PCs, and smartphones is faster than the rate of production cuts by companies. Contrary to the original expectation that the semiconductor industry will recover in the first half of next year, the outlook in the industry is that it will be difficult until the second half of next year.
According to market research firm Trend Force and the securities industry, as of the beginning of the fourth quarter of this year, Samsung Electronics, SK Hynix, and Micron’s DRAM inventory days were each counted as 15 weeks. The number of inventory days, which was only 6-7 weeks until the first quarter of this year, has more than doubled. In particular, the securities industry believes that SK Hynix’s inventory days will increase to 39.5 weeks as of the end of this year. Nam Dae-jong, a researcher at eBest Investment & Securities, said, “If you look at SK Hynix’s inventory level, next year it will be able to operate with only inventory.”
According to the ‘November Industrial Activity Trend’ announced by the National Statistical Office, semiconductor production decreased significantly to 11.0%. Semiconductors recorded the largest decline in three months since last August (-12.8%). As the global economy slows and demand for information technology (IT) slows, semiconductor production is also increasing the decline. The manufacturing average utilization rate, which refers to performance compared to production capacity, was 73.1%, up 0.6 percentage point (p) from the previous month, but semiconductors (-20.3%), telecommunications and broadcasting equipment (-26.9%), and electrical equipment (-9.2%) All of these decreased, down 2.4% from the previous month.
As the export economy does not recover, the manufacturing industry is also struggling. Export stagnation can be gauged by the speed at which inventories build up, and manufacturing inventories increased 1.4% from the previous month. Inventory-to-shipment ratio was 127.6%, up 4.8 percentage points (p) from the previous month. Inventories increased by 6.2% while shipments decreased by 3.8%.
The problem is that as inventory piles up, semiconductor companies ‘stock-drop’ prices go down, and this continues a vicious cycle that affects profits. According to Samsung Securities, as of the fourth quarter of this year, DRAM prices are estimated to drop 42% from the same period last year. In the second quarter of next year, there is even an expectation that it will be cut in half compared to the same period last year. Hwang Min-seong, a researcher at Samsung Securities, said, “There is a high possibility that inventory will not decrease next year, but rather increase,” adding, “We need to actively cut production.”
Due to this influence, there is even a prospect that Samsung Electronics may record a deficit in the market.
In a recent report, Daishin Securities projected an operating profit estimate of Samsung Electronics’ semiconductor division to a loss of 69.5 billion won in the first quarter and a loss of 67.4 billion won in the second quarter. The last time Samsung Electronics’ semiconductor division recorded an operating loss was in the first quarter of 2009 (705.2 billion won loss).
Wi Min-bok, an analyst at Daishin Securities, said, “Despite Samsung Electronics’ cost competitiveness in the industry, starting with a NAND flash operating loss in the fourth quarter of this year, losses in the DS division in the first quarter of next year and DRAM losses in the second quarter are expected.”
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