In February 2019, memory chip giant SK Hynix announced that it would invest more than $100 billion in four new fabs after 2022. “This is a long-term investment plan, and our strategy may change depending on market conditions,” an SK Hynix spokesman said.
The plan is still on hold. In the last three months of 2022, SK Hynix ushered in its first quarterly loss in ten years and the largest quarterly loss ever. In the financial report for the fourth quarter of 2022, SK Hynix’s revenue fell 38% to 7.69 trillion won, and its loss reached 1.7 trillion won (about 1.4 billion U.S. dollars). SK Hynix said it will stick to its plan to halve capital spending in 2023 as uncertainty remains.
It is not that memory chip companies have not experienced the down cycle of the industry. The last down cycle that affected the industry structure was in 2007. The Vista system launched by Microsoft had a greater demand for memory, and major storage manufacturers have expanded production for this. But then the failure of Vista caused the supply to far exceed the demand, and the price of DRAM memory fell all the way. By the outbreak of the global financial crisis in 2008, the market price fell below the material cost price, completely changing the industry structure.
In the past year, the memory chip industry has experienced excess inventory, reduced orders, and plummeting prices. In 2022, DRAM prices will fall from the beginning of the year to the end of the year. TrendForce surveys by TrendForce show that contract prices in the second half of the year have fallen by more than 10% every quarter. Micron, another memory chip giant, said the industry is experiencing the worst supply-demand imbalance since the 2008 financial crisis.
In the new year, the situation continued to deteriorate.
The long winter night of memory chips continues
According to the forecast of the World Semiconductor Trade Statistics Association (WSTS), the global memory chip market will experience a 17% decline in 2023. Bloomberg also predicts that the operating loss of major memory chip manufacturers will reach a record $5 billion this year, and the entire industry is experiencing a historic collapse.
Now, SK Hynix, Micron, Samsung, and other memory chip makers are losing money for every memory chip they produce.
In addition to SK Hynix, manufacturers such as Micron, Nanya, and Kaixia have also announced response plans, aiming to reduce production and other expenditure reduction actions, and strive to survive this round of “cold winter”.
According to Micron’s financial report for the first quarter of fiscal year 2023, the company’s revenue fell sharply by 47% year-on-year to US$4.09 billion. Micron CEO Sanjay Mehrotra predicts that until the end of 2023, the company’s profitability will still be challenged. Therefore, in addition to reducing production and investment, it will also lay off 10% of its employees (about 4,800 people), cut executive salaries, and suspend bonuses for 2023. and other actions to reduce spending.
Nanya’s revenue in the fourth quarter of last year fell below the NT$10 billion mark, down 27.8% year-on-year to NT$7.95 billion, the worst record in a decade. Nanya expects that the company will face losses in at least the next two quarters.
As one of the Big Three in memory chips, Samsung is no exception.
On January 31, Samsung Electronics announced its financial report for the fourth quarter of 2022, with revenue down 8% and operating profit down 69% year-on-year. Apart from the decline faced by the smartphone business, the biggest problem is concentrated in the semiconductor sector.
According to the financial report, the profit of the semiconductor department plummeted 97% year-on-year to 270 billion won (219 million U.S. dollars). Samsung’s semiconductor department is mainly composed of the foundry business department and the memory chip business department. With the highest sales in history, Samsung’s memory chip business is likely to be the same as other rivals:
are experiencing losses.
In the conference call after the announcement of the financial report, Samsung Electronics explained that “the performance has been greatly reduced due to the deterioration of consumer psychology, the further decline in sales prices, and the high inventory level.” But in the face of the same deterioration of the environment, Samsung did not choose to join the production reduction team. Prevent memory prices from continuing to decline.
“Barbarian” Samsung, online again
The reasons for memory chip manufacturers to reduce production are not complicated. On the one hand, they reduce losses by reducing production, and more importantly, they reduce market supply to prevent further declines in product prices. They have tried to reduce losses during industry down cycles, and even during industry up cycles. China has made a lot of money by reducing production.
In 2016, the rapid growth of demand for memory in smartphones led to a general shortage of memory chips, and the price of memory has risen accordingly. However, according to Business Korea, the surge in memory prices at that time was not just a market factor. Companies such as Samsung and Micron were also raising the price of DRAM by deliberately cutting production.
In 2023, memory chip manufacturers looked at their inventories, then looked at the market prices that continued to decline, and thought of reducing production. Micron announced a 20% reduction in DRAM and NAND Flash production, and Kaixia announced a 30% reduction in NAND Flash production. Manufacturers also generally hope that the world’s largest memory chip manufacturer Samsung “big brother” can collectively reduce production to avoid greater losses.
Samsung didn’t let other manufacturers get their way. The profit contributed by the memory chip business usually accounts for about 50% of Samsung’s overall profit. It is Samsung’s largest source of profit and has long been a blood transfusion for other exploration businesses. Despite this, Samsung once again emphasized after the announcement of the financial report that “it will not artificially reduce production.” At the same time, it will continue to build factories and increase R&D investment in 2023.
The heart of Samsung is well known to passers-by.
Since the beginning of the new millennium, through counter-cyclical investments time and time again, in the recession of the DRAM memory market, Samsung has successively defeated the German giant Qimonda and the Japanese “national team” Elpida by “increasing positions” against the market, and established a global memory market in one fell swoop. leading position.
Starting in 2022, semiconductors have entered a down cycle, and many giants have been hit hard. Samsung’s continued “increasing positions” is enough to further squeeze the living space of the storage market and expand the possibility of mergers or acquisitions. Relying on diversified business, Samsung is the only memory chip manufacturer that has not suffered serious damage.
In addition, after Apple suspended the use of YMTC’s 128-layer NAND flash memory plan at the end of last year, all orders were transferred to Samsung’s Phase III NAND flash memory project in Xi’an—according to “Nikkei Asia” reports, accounting for 40% of the NAND flash memory required by all iPhones , Samsung was Apple’s largest DRAM supplier before that. This also gave Samsung greater confidence:
Counter cycle.
On the other hand, Samsung’s lead in storage technology has been shrinking over the past two years. MoneyDJ quoted semiconductor industry sources as saying that the gap between rivals and Samsung has narrowed to within six months. Under the cold winter of the industry, when other giants collectively choose to “shrink”, Samsung chooses to increase R&D investment, which is also intended to re-extend its own technological leadership.
write at the end
Before the Spring Festival of the Year of the Rabbit, the general shrinkage of the year-end bonus has hurt many people’s hearts. As a few positive representatives, employees of Samsung Electronics’ semiconductor business can receive an annual performance bonus of 50% of their annual salary.
In fact, even at the worst time of performance, SK Hynix chose to give full year-end bonus. According to Jiwei.com citing Yonhap News Agency, the industry revealed that SK Hynix announced to the company on February 1 that the excess profit distribution of last year’s business performance – determined as 820% of the standard salary (41% of the annual salary) – will be released on February 1. To be paid to employees by March 3rd.
SK hynix said: “In order to compensate for the achievements of everyone’s hard work, we decided to cooperate with one mind despite the unprecedented decline, overcome the crisis, and achieve a greater leap forward. We hereby send this encouragement.”
But under the pressure of Samsung, it is difficult to say whether SK Hynix can continue to “encourage” this time next year.