Reasons Why Semiconductor Prices Do Not Drop Despite the New Coronavirus

[Asia Economy Reporter Changhwan Lee] Despite the novel coronavirus outbreak, semiconductor prices have not declined. It is analyzed that the impact of the novel coronavirus on semiconductor production is still minimal, and the expectation that customers may intensify their inventory stocking efforts due to concerns over supply disruptions is driving price stability.

According to market research firm DRAMeXchange on the 8th, the spot price of DDR4 8Gb DRAM, widely used for PCs, was $3.4 the previous day, maintaining a slight upward trend compared to $3.3 last week. During the same period, the price of TLC 256Gb NAND flash also rose from the $3.1 range to the $3.2 range.

The fixed price of DRAM also increased last month. The fixed price of DDR4 8Gb DRAM products averaged $2.84 on the 31st of last month. This is about a 1% increase compared to the end of December a month earlier, marking the first rise since the end of December 2018.

The rise in memory semiconductor prices is due to major semiconductor companies such as Samsung Electronics and SK Hynix continuing to adjust DRAM production volumes, alongside the ongoing expansion of customer demand for data centers.

The impact of the novel coronavirus is also interpreted as minimal. Currently, semiconductor factories of Korean companies in China, such as Samsung Electronics’ Xi’an semiconductor plant producing NAND flash and SK Hynix’s Wuxi semiconductor plant manufacturing DRAM, are operating 24 hours a day.

Although the Chinese government recommended many manufacturers to suspend factory operations this week, semiconductor plants were allowed to continue operating. Due to the nature of semiconductor manufacturing lines, once a factory stops, equipment must be re-inspected, which takes more than two months to resume operations. This process results in losses ranging from tens of billions to hundreds of billions of won.

Accordingly, several Chinese semiconductor companies, including Yangtze Memory Technologies Co. (YMTC), the largest NAND flash manufacturer in China, and Wuhan Xinxin Semiconductor, are reportedly operating their factories despite being located in Wuhan, the outbreak epicenter of the novel coronavirus.

However, there are concerns that semiconductor demand may deteriorate as consumer sentiment worsens due to the novel coronavirus, leading to decreased demand for smartphones, PCs, servers, and other products. It is already understood that domestic mobile phone sales in China during the Lunar New Year holiday period dropped by more than 50% compared to the previous year. Additionally, there is a possibility that overall product supply and demand may worsen due to supply chain disruptions. Consequently, there is a possibility of a temporary drop in semiconductor prices.

Nevertheless, the outlook is that semiconductor prices will continue to rise in the mid to long term. Demand for semiconductors remains strong due to customer data center expansions, and inventory stocking demand driven by supply instability is also emerging. There is also a forecast that a strong upward trend will reappear once the novel coronavirus situation calms down.

Researcher Seungwoo Lee of Eugene Investment & Securities said, "From experience, when uncertainty arises in the IT supply chain, set manufacturers tend to increase the proportion of safety stock as much as possible," adding, "In the short term, even if set demand at the consumer level decreases, component demand may actually increase due to proactive orders or double booking by set manufacturers to secure key components."

Lee added, "Especially since the inventory levels of DRAM and NAND have significantly decreased compared to last year, the upward trend in memory semiconductor prices will continue," and "Although it is true that uncertainty has increased due to demand slowdown and supply chain disruptions, from a mid to long-term perspective, the upward trend of the memory cycle will continue without major changes."

This content was produced with the assistance of AI translation services.