Chip giants grapple with falling chip price

Samsung Electronics and SK hynix are facing a rocky path to recovery due to growing uncertainties caused by the sluggish chip market and U.S.-China trade dispute. The two Korean chip giants have been struggling in 2019 with falling memory chip prices after the semiconductor boom cycle in 2017 and 2018, driven mainly by servers for data centers, ended.

Industry analysts said the two tech firms are unlikely to see their businesses turn around in the second half of the year as the escalating trade feud between the U.S. and China has heavily reduced the demand due to increasing uncertainty.

The latest market consensus on SK hynix’s operating profit for the April-June period stood at 764 billion won, around one-tenth the previous year’s 5.57 trillion won.

Noting that the downturn trend will continue in the second half of 2019, they estimated the company may post an operating loss in the fourth quarter of 2019 for the first time in seven years.

Samsung is also estimated to post a decreased operating profit in the second quarter as the market consensus stood at 6.04 trillion won, lower than 6.2 trillion won of the first quarter.

“After the boom cycle of memory chips ended, the prices of DRAM and NAND flash chips dropped heavily as companies operating data servers are also struggling to clear out their inventories,” an industry official in the semiconductor industry said.

“We expected the chip makers could recover from the falling prices but the U.S.-China trade war has caused them to continue struggling with their business.”

As the U.S.-China trade war rages on, the decline of memory chip prices will continue in the second half of 2019, according to data from market researcher DRAMeXchange.

The market researcher forecasted the average selling price of DRAM will fall by 10 percent but recently adjusted its outlook for the third quarter to between 10 percent and 15 percent. It also estimated the fourth quarter DRAM price will be declined by two percent to five percent but it also lowered the figure to 10 percent.

The researcher added the entire revenues for NAND flash brands in the first quarter of 2019 fell by 23.8 percent quarter-on-quarter and it will continue in the second quarter as well.

Lee Jong-hwan, a professor at the Department of System Semiconductor Engineering at Sangmyung University, said the recovery of demand for memory chips will not be swift.

“It is getting difficult for Samsung and SK hynix to see rebounds in the memory chip business starting from the second half of 2019 or early 2020 because of wild fluctuation in the memory chip market and negative impacts of the U.S.-China trade war,” Lee said.

Lee added all these negative outlooks have forced Samsung to make an aggressive foray into the non-memory sector.

“Samsung and SK hynix are in a no-win situation. The memory chip business only accounts for 25 percent of the entire semiconductor industry and this is why Samsung is rushing to beef up the non-memory sector,” Lee said.

Lee presumed SK hynix will also announce plans to seek more business opportunities in the non-memory sector like Samsung did.

“It’s just a matter of when. As Samsung did, SK hynix will come up with its non-memory business plan to diversify its business portfolio,” the professor said.

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