Samsung may lose chip throne to Intel

Samsung Electronics may lose its status as the world’s No.1 semiconductor supplier to U.S. giant Intel this year because of sluggish demand for memory chips.

According to data by industry tracker IC Insights, the memory chip market is expected to suffer a 24 percent drop in sales in 2019, which will pull the entire semiconductor market sales down 7 percent to $468.9 billion.

This may lead Samsung to post a 19.7 percent decrease in sales in the sector.

In 2018, 83 percent of Samsung’s semiconductor sales relied on memory devices such as DRAM and NAND flash memory chips, while the U.S. firm’s business is focused on non-memory chips.

The report said the declining market will help Intel regain the No. 1 spot, a position it held for 24 years from 1993 to 2016, because Intel’s semiconductor sales this year are forecast to be relatively flat.

Samsung retained the position in 2017 and 2018 thanks to explosive memory chip demand, mainly driven by servers for data centers. The market researcher presumed Intel’s semiconductor sales this year will be $70.6 billion, while Samsung will log $63.1 billion.

“This year will likely prove once again that the infamous volatile integrated circuit (IC) industry cycles are still very much alive and well in the memory market,” the report said.

The industry tracker also presumed there will be large capital spending cutbacks from the memory chip makers as suppliers “are expected to encounter a very difficult year in 2019.”

A source said Samsung is trying to find a breakthrough by bolstering its non-memory business unit, a move less affected by the industry cycle.

“Apart from the credibility of the report, Intel has shown its strength in the non-memory business, such as central processing unit chips, while Samsung has been good at memory chips,” the source said. “To increase profitability in the chip business, Samsung is accelerating the development of products in non-memory sectors.”

Samsung vice chairman Lee Jae-yong recently said the firm will focus on nurturing the non-memory chip and foundry business.

The decline of the DRAM and NAND flash markets will also reduce the profitability of memory suppliers including SK Hynix, which emerged as the world’s No. 3 chip maker in 2018.

“Similar to Samsung, the steep sales declines expected for SK Hynix, Micron and Toshiba in 2019 are likely to lower these companies’ revenues back to, or even below, what they were in 2017,” the report said.

Another industry tracker, DRAMeXchange, said the entire semiconductor market has entered “freefall” due to the decline in demand and increased inventory levels.

“Inventory levels have kept climbing ever since overall contract prices dropped in the fourth quarter of 2018 and most DRAM suppliers are currently holding around a whopping six weeks’ worth of inventory,” the researcher said.

Semiconductors accounted for 20.9 percent of Korea’s exports in 2018, according to the Ministry of Trade, Industry and Energy, so any price drop in memory chips could cause a problem for the economy.

Currently, the average price of Samsung’s 8-gigabyte DDR4 PC4-21300 DRAM chips here is 48,000 won ($42.40) as of Friday, a more than 25,000 won ($22) decline compared with last December.

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