Samsung Elec, SK hynix weighed down by worsening DRAM market outlook

Samsung Elec and SK hynix‘s DRAM

Samsung Electronics and SK hynix remain downbeat as the global memory chip market outlook grows darker.

Shares of Samsung Electronics, the largest memory chip maker in the world, traded at 59,000 won ($44.69) apiece in Seoul on Thursday morning after gaining slightly from the previous day’s closing price of 58,900 won. The chip stock has been hovering around 60,000 won for weeks.

SK hynix, the world’s second-largest memory chipmaker, is performing worse. Its stock closed Wednesday down 2.6 percent at 78,900 won, marking its first dip below 80,000 won since November 2, 2020. It recovered only slightly on Thursday morning to trade at 79,300 won.

Their bearish move comes amid the worsening outlook for the global memory chip market.

TrendForce in its latest report projected the price of server DRAM chips would plunge 25.3 percent in the fourth quarter as inventory adjustments at clients are taking longer than expected. Server DRAM chips are responsible for more than 40 percent of DRAM sales at both Korean chip giants.

Samsung Electronics‘ the fourth generation V NAND

Samsung Electronics will likely be able to make up for losses from other businesses, such as NAND flash, SSD, and foundry chips. However, DRAM is the only profit generator for SK hynix, which is grappling with a cumulative loss of 900 billion won partly due to the cost of acquiring the NAND flash business from Intel.

The inventory level at SK hynix also is high, which is expected to hit 39.5 days in the fourth quarter, according to eBest Investment & Securities.

Worse yet, global chip demand is falling. South Korea’s semiconductor exports plunged nearly 30 percent year-on-year in November, according to data from the Ministry of Trade, Industry and Energy. It was the fourth month in a row for the country’s chip exports to fall.

With waning demand, a fall in memory chip prices is expected to accelerate. It will likely continue to decline until the second quarter of 2023 as global chip output still exceeds shipments despite output cuts by Micron and Kioxia, said Choi Do-yeon, an analyst at Shinhan Securities.

Market analysts forecast SK hynix to report an operating loss of 1.4 trillion won or more in the fourth quarter, greater than the previous estimate of 1.2 trillion won, due to the rapid fall in DRAM chip prices. Its income from the DRAM chip business will likely be halved to 780 billion won from the previous forecast, while losses from the NAND flash business are expected to reach 1 trillion won in the fourth quarter.

Some analysts warn that the current SK hynix stock price does not reflect the high inventory situation, suggesting its stock price has not hit bottom. Others, however, argue that the current price already has factored in investors’ low expectations for the chipmaker’s next year sales.