Q3 Server Semiconductor Demand Expected to Decline, Concerns Over Impact on Han Semiconductor

[Asia Economy Reporter Changhwan Lee] Due to the increase in non-face-to-face (untact) demand caused by the novel coronavirus infection (COVID-19), the demand for server semiconductors, which had increased in the second quarter, is expected to decrease somewhat in the third quarter. Some negative impacts are also feared on the third-quarter earnings of Samsung Electronics and SK Hynix.

According to a survey by the DRAMeXchange research division of market research firm TrendForce on the 26th, server memory orders from server companies in the second quarter of this year are expected to increase by about 9% compared to the previous quarter.

This is due to the increase in orders from major server demanders such as Microsoft, Google, and Tencent as the untact culture spread due to COVID-19. Microsoft's server orders this year are expected to increase by 30% compared to the previous year, Google by 20%, Tencent by 15%, and Amazon by about 8%.

Mark Liu, senior researcher at TrendForce, explained, "The server market is still led by North American and Chinese companies," adding, "Server demand in the first half mainly increased in sectors working from home due to the COVID-19 pandemic, such as remote meetings and media streaming."

As server orders increase, the second-quarter performance of major domestic semiconductor companies supplying server memory semiconductors, such as Samsung Electronics and SK Hynix, is also expected to improve.

The semiconductor business operating profit of Samsung Electronics for the second quarter is expected to be around 5 trillion won, according to the financial investment industry. More than 80% of Samsung Electronics' expected second-quarter operating profit of 6 trillion won is anticipated to come from the semiconductor division. SK Hynix's estimated operating profit for the second quarter is 1.6 trillion won, which is expected to surge about 160% compared to 637 billion won recorded in the same period last year.

The problem lies in the third quarter. Since server companies' inventories are increasing, there are concerns that third-quarter orders will decrease somewhat. TrendForce expects third-quarter server semiconductor orders to slightly decline compared to the previous quarter.

Researcher Mark Liu stated, "In the third quarter, as server companies' inventories accumulate, orders are likely to decrease compared to the second quarter," adding, "The overall demand for server memory in data centers worldwide is expected to grow about 5% compared to last year."

Orders for servers from major companies are also expected to decrease in the third quarter. Facebook's third-quarter server memory orders are expected to decrease by 2-3% compared to the previous quarter, and Microsoft is also analyzed to slightly reduce orders.

There is an analysis that the recent sharp drop in DRAM spot prices is due to this. According to DRAMeXchange, the spot price of DDR4 8-gigabit (Gb) DRAM products, mainly used in PCs, was $2.8 as of the 25th, dropping more than 20% from the peak in early April. As spot prices continue to fall, the fixed prices, which had been rising, are also expected to slow down.

Researcher Seungwoo Lee of Eugene Investment & Securities explained, "Recently, there have been reports of increased inventory in some data centers and DRAM order cuts," adding, "The possibility that companies' investment budgets may decrease in the second half due to the impact of COVID-19 is also a burden on DRAM prices in the second half."

If semiconductor prices fall, Korean companies will also be negatively affected. Researcher Gyujin Uh of DB Financial Investment said, "There are concerns about a decrease in orders for data center memory semiconductors in the semiconductor division in the second half," but added, "However, if the impact of COVID-19 decreases and smartphone sales increase in the second half, mobile semiconductor demand may rise and offset this."

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