Chip market observed to rebound next year: Industry

[Courtesy of Samsung Electronics]

Samsung Electronics Co. posted better-than-expected third-quarter earnings on Wednesday as the Device Solution (DS) unit responsible for chip production managed to narrow operating losses, according to market analysts.

They note that the South Korean tech giant has seized the momentum of a rebound in the third quarter by raising the prices of dynamic random-access memory (DRAM) and NAND flash memory chips as part of its greater production cut.

The market estimates that Samsung Electronics’ DS division logged an operating loss of 3.7~3.8 trillion won ($2.7 billion~$2.8 billion) in the third quarter, a notable improvement from 4.58 trillion won in losses in the first quarter and 4.36 trillion won in the second quarter.

Samsung Electronics’ operating loss is estimated to stem from the memory chip division, reaching more than 3 trillion won.

The weak performance is blamed at a slow recovery in demand amid low prices of DRAM and NAND chips.

“The company’s shipment output remained lackluster in the wake of limited response to high-performance Double Data Rate (DDR) 5 and High Bandwidth Memory (HBM),” said Kim Sun-woo, an analyst at Meritz Securities Co.

Despite the challenges, Samsung Electronics managed to reduce operating loss in its core memory chip unit amid increasingly clear signs of industry recovery. Some expected that the slump in the industry that began in the late half of 2022 will be coming to an end after the third quarter.

Following its production cut, which helped improve market conditions, Samsung Electronics has seen its product prices rise, especially for DRAMs.

“The production cut aimed to reduce inventory assets,” said Chae Min-suk, an analyst at Korea Investment & Securities Co. “The impacts of the supply control are already becoming evident, and the average selling price (ASP) of DRAMs has started an upward trend in the third quarter.”

There are growing expectations that Samsung Electronics could see a profit turnaround in DRAM earnings in the fourth quarter as high-value sales, such as DDR5 and HBM, are robust.

Demand for DRAMs has increased in response to increased sales for newly launched mobile devices, such as the Galaxy Z series, and personal information technology gadgets, like laptops.

The selling prices of DRAMs have increased slightly compared to earlier this year.

According to Han Dong-hee, a researcher at SK Securities, “Samsung’s DRAM profitability, which neared the break-even point (BEP) in the third quarter, is set to further accelerate its recovery in the fourth quarter as the impact of the second round of production cuts begins to affect the supply.”

Market analysts also expected the chip industry to begin a rebound trend, mainly driven by the NAND segment, citing the company’s recent price rise at a significant rate.

“A simultaneous rise in DRAM and NAND prices is expected in the fourth quarter prices, marking the first occurrence of this trend in two years since the third quarter of 2021,” said Kim Dong-won, a researcher at KB Securities Co.