At present, the shipments of downstream terminals, including mobile phones and PCs, continue to decline, and the chill is gradually transmitted to the upstream supply chain. As the category with the largest shipment volume in the chip industry, the whole industry is bleak.
Memory chip is the core unit responsible for data storage in electronic system, and almost all devices need to be equipped, accounting for 1/3 of global chip shipments. It can be roughly divided into two directions: DRAM chip (memory) and NAND Flash (flash memory): in DRAM field, SAMSUNG, HYNIX and MICRON dominate 95% of the former market share. In the field of NAND Flash, SAMSUNG, HYNIX, KIOXIA, WESTERN DIGITAL and MICRON are separated and occupy 90% of the market.
But nowadays, the life of these memory chip oligarchs is not very good. The financial reports of each family can see a clue. The financial report released by Samsung Electronics in Q4 2022 not long ago showed that the revenue of semiconductor business fell by 24% year-on-year, and the profit fell by 97%, which was the lowest level in the last 13 years; HYNIX, the days of making profits every quarter in the past ten years have ended, and in Q4 2022, it turned from profit to loss for the first time; HAIKWANG Q4 financial report also showed that its net profit fell by 23% year-on-year.
Since 2022, memory chips are undoubtedly an area that has been violently impacted in the downward cycle of chips. According to TRENDFORCE, DRAM prices are expected to drop by 20% and 11% in Q1 and Q2 respectively in 2023. To this end, every family in the industry is looking for positive ways to deal with it, such as reducing production, laying off employees and clearing inventory, but this day is expected to continue for some time. Han Zhongxi, CEO of SAMSUNG Electronics, said that "it is expected that this difficult business environment will continue this year".
A typical feature of the memory chip industry is that it is not only large in quantity, but also low in difference and homogeneous in products provided by various companies. Therefore, memory chips have the attributes of typical bulk commodities, and drastic periodic changes occur from time to time. Looking back at the development of memory chips in the past few decades, we can also find that it is precisely in the trough that there are huge overtaking opportunities.
Adjust supply and demand, and memory chip manufacturers collectively reduce production capacity
The three-year epidemic is over, but the memory chip industry is still in a difficult destocking time. The mountain of inventory was not created in one day, but the chain reaction of supply chain in the past three years. At the beginning of the epidemic, the expectations of major consumer electronics manufacturers were too high, and the factories stopped production due to the epidemic, which led to a serious core shortage in the industry. In order to actively cope with it, memory chip manufacturers all over the world started to actively expand production at that time.
Market demand is changing rapidly, especially the combination of many negative factors such as global interest rate hike and high inflation last year, the purchasing power of consumers is declining, and the consumer electronics industry is historically weak. However, the chip supply chain has always lagged behind the market response, and the supply chain has a certain digestion time for the downstream order cutting request. As a result, the expansion of production in the early stage of the epidemic has not stopped, and the downstream can no longer eat so many chips. With the increase of supply and the decrease of demand, a large number of chips have been deposited by chip manufacturers and distributors.
Under the high inventory, the memory chip market has seen both volume and price fall. Therefore, memory chip manufacturers have to save profits by cutting expenditures in various ways. Micron previously announced that its capital expenditure plan will be cut by 30% in fiscal year 2023. Mehrotra, CEO of MICRON, once said that there are various ways for the company to cut capital expenditure-including reducing the salary of executives, suspending the bonus of employees throughout the company, suspending the construction of new factories, and even cutting R&D investment in advanced semiconductor manufacturing processes; HYNIX is more aggressive in cost reduction, and the company said it would cut its capital expenditure by 50% in 2023.
However, these methods can only help the company survive the winter in the short term, and the most difficult thing is to adjust supply and demand. Therefore, starting from 2023, storage manufacturers collectively promoted production reduction and reduced chip supply from the source. For example, KIOXIA previously announced that the wafer production of its NAND flash memory factory will be reduced by 30%; MICRON also reported a 20% reduction in production capacity.
A report from Zheshang Securities predicted the future trend of consumer electronics chips. According to the report, although manufacturers are in the stage of "active destocking", with the recovery of the global economy in the future, the demand for downstream consumer electronics such as mobile phones/smart home appliances/smart cars will recover, and the price of memory chips will gradually stabilize in the future. It is expected that the next inflection point of price cycle will appear during Q2-Q3.
Chip downlink cycle, hiding the opportunity of overtaking in corners
Most storage manufacturers have made a clear statement on reducing production capacity, but SAMSUNG has always been ambiguous. SAMSUNG Electronics said earlier that it will promote necessary infrastructure investment in 2023, increase its production capacity by 10% to meet the medium and long-term demand in the future, and its capital expenditure plan will be flat in previous years. However, in the near future, when the market continues to be depressed, there have been many information speculations in the industry that SAMSUNG will follow the general trend of the industry and reduce the production capacity of memory chips. SAMSUNG did not make a clear response to this rumor.
SAMSUNG has profited from this countercyclical investment strategy many times in its development, and had a difficult time before SAMSUNG won the top spot in DRAM memory. In 1985, the DRAM market continued to decline, and industries including Japan reduced production like most memory chip oligarchs today. American companies including INTEL reduced investment in order to survive, while SAMSUNG chose to put all its eggs in one basket, continuously expand production and develop DRAM chips with larger stocks. At that time, SAMSUNG'S semiconductor business lost 2 billion yuan every year, and its stock price also continued to decline.
It was not until 1987 that the industry turned for the better. With the price of DRAM chips rising and the severe anti-dumping investigation of Japanese enterprises by the US authorities in the objective environment, SAMSUNG’S DRAM semiconductors gradually entered the profit line. SAMSUNG has also used the same idea of solving problems in the investment of LCD panels.
Looking back at the development history of semiconductors, we can find that almost every downward cycle is a process of reshuffling chip players. Large companies with sufficient capital reserves and more advanced technology often take advantage of the trend to acquire small and medium-sized companies that have lost in the competition at a lower price to supplement their R&D strength. It is also mergers and acquisitions that make the throne of memory chip giants constantly switch, and the industrial focus has undergone regional shift: from the earliest American market dominated by INTEL, TI and MOSTEK in 1970s, to the Japanese market dominated by TOSHIBA and HITACHI in 1980s, and then to the Korean market dominated by SAMSUNG in 1990s, and continues to this day.
Nowadays, there are few giants in the global memory chip industry, the market structure of DRAM chips is relatively stable, and the competition in the field of NAND flash memory chips continues. Earlier, it was reported that WESTERN DIGITAL recently received an investment of 6 billion yuan, and planned to split the flash memory business and merge with KIOXIA. These two manufacturers rank second and fourth in market share respectively, which together are just equal to SAMSUNG in the first place, and they also happen to be the largest players in the field of flash memory chips in the US and Japan markets.
This means that the two countries that once fought against each other in the field of memory chips are about to reach a new cooperation to strangle new players. The continuous decline of SAMSUNG’S performance has had a far-reaching impact-memory chips support half of South Korea's exports, while according to the report released by South Korea in January, semiconductor exports have declined year-on-year for half a year, showing the largest trade deficit in history. This cold winter of memory chips may also be the prelude of a new reshuffle.
This article Source: 36 Krypton
Sales of mobile phones and PCs hit a new low, and the memory chip industry ushered in a big shock-China exportsemi.com
