Memory chip market continues to be weak, Samsung, SK Hynix are huge losses

On April 27, Samsung Electronics reported an 18 percent drop in revenue for the first quarter and a net profit of 1.575 trillion won (US$1.18 billion), down 86 percent year-on-year. In particular, Samsung Electronics' Device Solutions (DS) division, which is responsible for the chip business, posted a massive operating loss of 4.58 trillion won (US$3.4 billion), its first loss in 14 years. Chip inventories rose sharply amid reduced global demand.
Storage majors are facing tough market conditions as their performance is under pressure. Just a day before Samsung released its earnings report, another major South Korean memory chip giant SK Hynix released its first quarter 2023 earnings, the company achieved revenue of 5.09 trillion won (about 3.8 billion U.S. dollars), down 34% sequentially and 58% year-on-year; net loss of about 2.59 trillion won (about 1.9 billion U.S. dollars), a net loss of about 3.72 trillion won in the previous quarter, two consecutive quarters of losses. For the quarter, SK Hynix posted an operating loss of 3.40 trillion won, a record single-quarter operating loss for the company.
SK Hynix Chief Financial Officer Youhyun Kim said that the memory chip market is still in a tough state, but seems to be bottoming out, SK Hynix said that sales are expected to pick up in the current quarter and that the memory chip market situation is expected to improve from the second half of this year. Hynix said customer chip inventory levels declined throughout the first quarter following a series of production cuts in the industry. The company also said that the decline in customer memory chip inventories indicates that the production cutbacks that began last year are starting to take hold.
Outside the two major South Korean memory chip makers, US memory chip maker Micron's fiscal second quarter report for fiscal 2023 on March 29 showed its revenue for the quarter was US$3.69 billion, compared with US$4.09 billion in the previous quarter and US$7.79 billion in the same period last year, a decline of about 53% year-on-year. Micron Technology reported a loss of US$2.31 billion for the second fiscal quarter, which included an inventory loss of over US$1.4 billion and a loss of US$2.12 per share.
This is Micron's worst quarterly loss in the past two decades, with the last quarterly loss of this magnitude coming in the second quarter of fiscal 2003, when Micron posted a net loss of US$1.94 billion. Micron CEO Sanjay Mehrotra said "the industry is facing the worst recession in the last 13 years".
Micron, SK Hynix, Samsung has announced the latest earnings, storage chip market conditions in the year and the medium and long-term has a preliminary conclusion. Samsung said chip demand will likely remain sluggish in the second quarter, then gradually rebound in the second half of the year. SK Hynix said the storage chip industry will come out of the doldrums later this year as China's economic recovery and artificial intelligence drive demand. China is the world's largest market for personal computers and smartphones and its economy is currently rebounding, igniting optimism about the chip market, while a global boom in artificial intelligence will also drive demand for data centres and servers, which rely on high-density memory chips.
Since the second half of 2022, demand in the storage chip market has fallen again and again, with shipment prices falling sharply. Semiconductor industry consultancy Tiburon Consulting previously judged that in the first quarter of 2023, the overall selling price of global DRAM products continued to decline by 13% to 18%; for NAND, it continued to decline by 10% to 15% in the first quarter. The agency recently updated its judgment, in the second quarter, DRAM prices will continue to decline by 10%-15%, still no sign of stopping the decline; NAND prices also continue to decline by 5%-10%, whether the decline can be stopped depends on the demand in the second half of the year.
With supply and demand changing, the chip market is still in a downward cycle and storage manufacturers have been cutting production to address the current state of the industry. Youxian Kim said that in the fourth quarter of 2022, SK Hynix had already started to cut production of mature processes as well as low-margin products, and gradually began to produce results in the first quarter; however, in view of the industry's expected downward adjustment, the company has extended the scope of production cuts to products with relatively high inventory levels.
Samsung has previously announced production cuts, saying it will optimise production line operations already underway and reduce memory chip production to a "meaningful level". Samsung also said that despite the reduction in short-term production plans, demand remains stable in the medium to long term, and in order to strengthen its technological leadership, the company will continue to invest in the construction of clean rooms, while also further enhancing the proportion of investment in research and development.
From the end market feedback, several major memory chip manufacturers have each taken measures to refuse to reduce the price of their chips. According to Taiwan Electronics Times today, Micron consumer parts-related departments have formally issued a notice to distributors that since May, DRAM and NAND Flash will no longer accept inquiries below the current stage of the market, in this view, Micron believes that the current price is the lowest, will no longer accept price reduction requirements. Samsung has also previously informed its distribution agents that it will no longer sell DRAM chips at a price lower than the current one.
According to data from Tiburon Consulting, in the fourth quarter of 2022, in the global DRAM market, Samsung Electronics, SK Hynix and Micron Technology ranked the top three, with market shares of 45.1%, 27.7% and 23.0% respectively; in the NAND market, Micron Technology ranked fifth, with a market share of 12.3%; Samsung Electronics and SK Hynix ranked first and third, with market shares of 31.4% and 18.5% respectively. As a bulk class of chip products, widely used in mobile phones, personal computers, servers, etc., memory chips are regarded as a leading indicator of the economy, and the current demand reflects the economic outlook for the next six months.