Samsung, SK hynix shares fall after Morgan Stanley warns of semiconductor down cycle

Shares of Korea’s leading chipmakers, Samsung Electronics and SK hynix, slumped Thursday morning following a Morgan Stanley report predicting a down cycle for the semiconductor industry.

SK hynix's headquarters in Icheon [YONHAP]

Shares of Korea’s leading chipmakers, Samsung Electronics and SK hynix, slumped on Thursday following the release of a Morgan Stanley report predicting a down cycle for the semiconductor industry.

The report, which came out on Sunday, projected excessive supply of high bandwidth memory (HBM) chips, currently a cash cow for chipmakers, and reduced the target prices of the two Korean companies.

After the three-day Chuseok harvest festival, SK hynix shares plunged 6.14 percent to close at 152,800 won ($115.24) while Samsung shares dropped 2.02 percent to 63,100 won. Shares of Samsung Electronic hit a new 52-week low on Thursday morning, falling as low as 62,400 won. SK hynix shares once plummeted more than 11 percent in the morning.

Under the title “Winter Looms,” Morgan Stanley downgraded its industry view on Korea’s technology from “neutral” to “cautious,” and lowered its investment rating for SK hynix from overweight to underweight.

“Our peak cycle signposts are flashing red now,” the report read. “Our primary concern is that once the current cyclical boost for DRAM [dynamic random access memory] fades, [SK] hynix may be left with a challenged NAND business that is already worsening. Add upside risk to production normalizing, and considering the sharp increase in capex for DRAM and HBM, and we believe risks after 2024 are being underappreciated.”

The report slashed SK hynix’s target price by 54 percent to 120,000 won and Samsung’s target price by 27 percent to 76,000 won. However, the bank noted that Samsung’s investment opinion still retains an overweight as it expects the quality and value of its chips to overperform even on a down cycle.

The fall in memory chip prices has been weighing on the two chipmakers’ share prices this month, overturning the prior consensus that the chip industry is retaining an up cycle.

Meanwhile, both SK hynix and Samsung Electronics said on their respective conference calls this year that their companies’ HBM volumes are sold out until 2025.

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