DRAM prices drop as expectation of upcycle dissipates

Chip giants at home and abroad are reeling from a reversal in investor optimism for chip shipments as consumer demand for electronics wanes.

Samsung Electronics' headquarters in Seocho District, southern Seoul [NEWS1]

The earlier prevailing consensus that the semiconductor industry would see a steep uptick has been upended as memory chip prices fall more rapidly than expected, contributing to plunging investment sentiment for chip giants at home and abroad.

Shares of Samsung Electronics fell 2.03 percent to close at 67,500 won ($50.10) on Monday. Shares of its domestic rival, SK hynix, however, gained 0.38 percent, successfully reversing a dip of over 3 percent in the morning.

The downturn took a cue from the United States, where shares of Nvidia fell 4.1 percent on Friday.

The average contract price of 8GB Double Data Rate 4 (DDR4) dropped 2.38 percent compared to the previous month to $2.05 in August, according to market tracker DRAMeXchange. The prices of DRAM chips had been on an upward trajectory from last October and remained relatively stable, hovering around $2.10 a unit for three months from May to July, until the dip last month. The fall is a reflection of weak demand in consumer electronics, according to market trackers and local analysts.

"Demand for consumer electronics has not rebounded as expected," noted Taiwanese market tracker TrendForce. "For instance, smartphone inventories in China have reached excessive levels, and notebook purchases have been delayed as consumers await new AI-powered PCs, leading to continued market contraction."

The spot price of DRAM chips, which has also seen an upward trend since last September, tapered off. The spot price of an 8GB DDR4 2666-megahertz (MHz) chip was $1.971 on Friday, down 1.5 percent from an annual high of $2 on July 24. For 16GB DDR4 2666MHz, the spot price also fell 1.6 percent to $3.81 from an annual high of $3.87 on July 23.

Furthermore, a forecast of sluggish tech demand in the third quarter has led Korean analysts to cut target stock prices for Samsung and project an earnings miss for the conglomerate in the third quarter.

KB Securities lowered its target stock price by 26 percent to 95,000 won on Monday.

“Memory shipments and price increases are expected to fall short of expectations in the second half of 2024 because of sluggish sales in smartphones and PCs starting in the third quarter,” said KB Securities analyst Jeff Kim in a report. “Smartphone and PC makers, which have continually built up their memory chip inventories since the third quarter of 2023, are likely to adopt conservative purchasing strategies for components in the second half of 2024, as new product demand has fallen short of expectations.”

DB Financial Investment slashed its target price by 9 percent to 100,000 won. Hyundai Motor Securities also cut its price 5.5 percent to 104,000 won.

Greg Roh, head of research center at Hyundai Motor Securities, also projected Samsung’s third quarter figures to fall short of the market consensus by 7.2 percent and 19.7 percent for revenue and operating profit, respectively.

However, he evaluated that the price of server DRAM is performing better than market expectations as server demand from the North American region shows signs of recovery.

“The facility investments made by memory chipmakers this year will not immediately lead to an increase in supply next year, allowing favorable market conditions to continue and annual profit momentum to be maintained,” Roh said.

The retraction in investor sentiment also follows a weaker-than-expected employment report from the U.S. Bureau of Labor Statistics on Friday, as 142,000 jobs were added in August, fewer than the 165,000 expected by economists.

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]