Samsung, hynix may see OP rebound late next year on output cut

SK hynix headquarters [Courtesy of SK hynix]

There will be bumpy roads ahead for the chip industry, the mainstay in South Korea’s export, next year, but the sector is expected to bounce back late next year on a cut in overall production, according to projections from local securities firms on Sunday.

Samsung Electronics’ operating profit for 2023 is estimated to plunge by around 30 percent on year to 33.62 trillion won ($25.66 billion) over sales of 304.2 trillion won, down 1.3 percent from this year, based on a market consensus polled by FnGuide. This is because demand for smartphones, PCs, and servers that use semiconductors is expected to decrease as inflation-wary consumers are expected to remain reluctant from spending amid economic downturn.

The outlook for SK hynix is bleaker. The world’s No. 2 memory chip player is forecast to dip in the red next year with an estimated operating loss of 1.35 trillion won over sales of 35.58 trillion won, down by 22.44 percent from this year.

Global semiconductor sales next year are expected to decrease by 3.6 percent on year to $596 billion, according to market tracker Gartner. The decrease will be particularly significant in memory chip salesy. Gartner expects worldwide memory semiconductor sales in 2023 to decline by 16.2 percent against 2022. DRAM sales are estimated to fall by 2.6 percent this year to $90.5 billion and by 18 percent next year to $74.2 billion due to the continued oversupply of memory chips at least until the third quarter of next year. NAND sales for next year are expected to contract by 13.7 percent to $59.4 billion.

As DRAM production continues despite contraction in demand, suppliers’ inventory levels will peak next year and the average selling price of DRAM will drop by 37.2 percent on year from this year, with the average selling price of NAND down by 46 percent, said Kim Young-gun, an analyst at Mirae Asset Securities.

SK hynix could be hit more severely due to its high dependence on memory chip business.

The company’s inventory would be at 39.5 weeks at the end of the fourth quarter and this means it would be possible to operate with only inventory, said Nam Dae-jong, an analyst at eBest Investment & Securities, adding the increased inventory will be factored into as a valuation loss until at least the second quarter of next year, which may be larger than expected.

Analysts predict, however, that the semiconductor industry would be able to rebound from late next year as chip prices are expected to rise following aggressive investment and production cuts. Chip demand is expected to recover.

Next year, the semiconductor market will decrease by about 6 percent compared to this year, but since inventory adjustment is already underway and even investment reduction is being discussed, said Lee Seung-woo, an analyst at Eugene Investment & Securities. With an inflection point in the cycle appearing after the second half of next year, the semiconductor market would enter the growth phase again from 2024 onward, Lee explained.

Samsung Electronics’ DRAM market share is expected to drop from 45.8 percent in 2017 to 42.4 percent this year in terms of sales, but will rebound to 45.7 percent in 2024, forecast Noh Geun-chang, an analyst at Hyundai Motor Securities. Samsung’s NAND market share will also drop from 36.5 percent to 33.8 percent over the same period but will rise again to 35.7 percent in 2024.