Since the outbreak of the new crown epidemic, demand for electronic equipment has increased significantly, and chip manufacturers have taken the opportunity to expand production capacity. However, it did not take long before consumer demand dropped significantly, and chip inventories piled up, causing prices to plummet.
Due to the historic decline in demand, global memory chip prices suffered their largest decline since 2008 in the second half of last year. At present, whether it is DRAM or NAND, these two memory chips have hit a new low since 2008, even falling to 15 years ago.
The latest data from market research company TrendForce shows that in the fourth quarter of last year, the average price of DRAM (dynamic random access memory) plummeted by 34.4%, while the decline in the third quarter was 31.4%; the price of NAND flash in the third and fourth quarters of last year fell by 34.4%. 32% and 27.7% respectively.
Figure 1: After the outbreak, demand for electronic equipment experienced a surge and then a decline . Chip inventories accumulated, causing prices to plummet.
Due to the severe decline in memory chip prices and the weak global economic performance, most chip manufacturers cut production capacity and postponed expansion plans in the second half of last year. Micron Technology, SK Hynix and Kioxia have all announced corresponding measures to try to stabilize the market by controlling oversupply. Analysts pointed out that these measures will certainly affect corporate profits, but "survival" is the top priority.
In contrast, Samsung Electronics, the world's largest memory supplier, is doing the opposite. The company is still sticking to its aggressive capital expenditure plan and will spend more than $30 billion this year to further expand its production capacity. Samsung's spending on chips reached $39 billion last year. An Hyungjin, CEO of Billionfold Asset Management, said Samsung's move to maintain its spending pace will hit other smaller competitors.
However, the plunge in chip prices is also eroding Samsung's profits. The financial report released last month showed that profits from Samsung's chip business plunged 97% in the fourth quarter of last year to 270 billion won (approximately US$220 million).
Samsung is still betting on the long-term prospects of memory chips, as cloud services, connected cars and artificial intelligence systems become more popular, all of which have strong demand for storage. Samsung has previously said it expects the smartphone market to shrink again this year, but artificial intelligence products such as ChatGPT will boost demand.
