Falling chip inventory points to supply peak

Inventory assets at Samsung Electronics continued to jump in the first half of 2023, but this growth has slowed following the company's production cut, raising hopes for a peak out in the chip glut.

Scouts from North Macedonia participating in the World Scout Jamboree tour SK hynix's memory chip facility in Icheon, Gyeonggi, on Thursday. [SK INC.]

Inventory assets at Samsung Electronics continued to jump in the first half of 2023, but this growth has slowed following the company's production cut, raising hopes for a peak out in the chip glut.

Inventories at Samsung Electronics’ Device Solutions (DS) division in June stood at 33.7 trillion won ($25.2 billion), up 15.8 percent from December, according to the chipmaker’s second-quarter earnings report released on July 27.

The DS division leads Samsung’s semiconductor business.

The figure was up 56.6 percent on year, meaning new inventory worth 4.63 trillion won was added in the first six months of this year.

But this growth has slowed. While Samsung's inventory rose 9.94 percent during the January-March period from the previous three months, the pace of growth nearly halved to 5.45 percent between April and June.

The world’s largest memory chip company announced in April that it would cut chip production for the first time in seven years “to a meaningful degree” after suffering a 95.8 percent decline in operating profit during the first quarter.

Inventory at Samsung Electronics and SK hynix [SAMSUNG ELECTRONICS, SK HYNIX]

Samsung pledged to cut NAND production in the second half to quicken a turnaround.

“Inventory for both DRAM and NAND flash memory chips bottomed out in May and has since been declining rapidly,” Kim Jae-june, the DS division's executive vice president, said during a conference call on July 27.

SK hynix, which began cutting memory chip production ahead of Samsung, saw its second-quarter inventory drop 4.64 percent on quarter to 16.4 trillion won to mark the company's first inventory decline since the end of 2021. Its inventory had nearly doubled from 8.95 trillion won to 15.7 trillion won between December 2021 and December 2022.

Although the chipmakers’ production cuts signal optimism for the chip glut nearing an end, their inventories remain at record-high levels, or a combined 50.1 trillion won. Samsung’s inventory currently accounts for 12 percent of its entire assets, and SK hynix’s inventory makes up 16 percent of its assets.

Falling inventory turnover, or a measure of how many times inventory is sold over a period, is a hurdle for the duo as well and indicates lagging inventory depletion.

SK hynix's 321-layered NAND flash memory chip [SK HYNIX]

Samsung’s inventory turnover ratio in June was at 3.3 times per year, down from 4.1 six months earlier. SK hynix’s was at 1.8, down from 2.4 during the same period.

Both companies are now focusing on high value-added segments, such as the high bandwidth memory chip market, enlarging their investment in research and development (R&D).

Samsung’s first-half R&D spending hit 13.8 trillion won, or 11.1 percent of its sales, while SK hynix spent 16.8 percent of its sales, or 2.1 trillion won, in that respect.

BY PARK HAE-LEE [sohn.dongjoo@joongang.co.kr]