Semiconductor Industry Faces Rapid Market Changes with 'Gray' Outlook... Stock Prices and Earnings 'Shaken' (Comprehensive)

Extended Semiconductor Equipment Lead Time
Memory Semiconductor Prices Also Decline Due to Slowing IT Device Demand

[Asia Economy Reporter Park Sun-mi] The Korean semiconductor industry, led by the 'two giants' Samsung Electronics and SK Hynix, has fallen into a 'gray' quagmire due to rapidly changing market conditions despite strong government support. Although plans have been made to increase facility investments to expand semiconductor production, the extended equipment lead times (the time from order to delivery) are threatening to disrupt the execution of these plans. With global IT device demand declining due to inflation and reduced consumer spending, there is a prevailing forecast that semiconductor prices will fall in the second half of the year. Amid these bleak predictions, the stock prices of Samsung Electronics and SK Hynix, the leading semiconductor companies, have struggled to recover.

◆ Equipment Lead Time Extended by 18 to 30 Months... Semiconductor Production Expansion 'Disrupted' = On the 23rd, market research firm TrendForce diagnosed that semiconductor equipment lead times have extended from 18 months up to a maximum of 30 months. Compared to the pre-COVID-19 period when lead times were only 3 to 6 months, this represents an increase of more than five times at the maximum duration. TrendForce attributes this to prolonged COVID-19 disruptions hindering cross-border logistics, inflation caused by the Russia-Ukraine war, and rising raw material prices, all of which have caused supply chain issues.

As semiconductor equipment lead times continue to lengthen, immediate disruptions have occurred in production expansion plans of foundry companies such as Samsung Electronics and TSMC. TrendForce expects the annual production capacity growth rate of foundry companies to drop from the previous 10-13% to around 8%. Additionally, the execution speed of already established production capacity expansion plans by foundry companies is predicted to be delayed by approximately 2 to 9 months due to equipment shortages.

In Korea, the impact on Samsung Electronics and SK Hynix, which are expanding semiconductor production facilities, is inevitable. Samsung Electronics, aiming to become the number one system semiconductor company by 2030, is currently undertaking large-scale facility investments. Starting in the second half of the year, the operation of the third line (P3) at the Pyeongtaek semiconductor plant will commence, followed by the construction of the fourth line (P4). In Texas, USA, construction has begun on a foundry plant targeting operation in 2024. SK Hynix is also expected to hold a groundbreaking ceremony next month for the Yongin Semiconductor Cluster, where it plans to invest 120 trillion won to build a total of four semiconductor production plants (Fabs).

◆ Gloomy Atmosphere Leads to '↓' in Earnings and Stock Price Outlook = Negative forecasts for the semiconductor sector have caused the stock prices of Samsung Electronics and SK Hynix to continue their downward trend. As of 10 a.m. on the day, Samsung Electronics' stock price was 57,500 won, down 0.17% from the previous day, while SK Hynix was at 91,700 won, down 0.54%. Samsung Electronics, which has been sliding for five consecutive trading days, recorded a new 52-week low on this day. SK Hynix's stock price, which was over 130,000 won two months ago, has fallen by about 30%. Securities firms have lowered their annual operating profit forecasts for both Samsung Electronics and SK Hynix.

In an environment where semiconductor production is inevitably disrupted, the slowdown in IT device demand presents another challenge. Due to global inflation and economic uncertainties, consumer electronics such as smartphones, PCs, and home appliances have seen reduced consumption, shaking semiconductor demand. This demand slowdown leads to price drops, negatively impacting earnings.

The semiconductor industry forecasts an oversupply of NAND flash in the third quarter of this year, with average prices expected to fall by 0-5%. Particularly, consumer SSDs are expected to see prices drop by 3-8% in the third quarter due to a sharp increase in inventory caused by sluggish PC and laptop demand. This is a complete reversal from the second quarter, when consumer SSD prices were expected to rise by 3-8%.

Prices for 3D NAND wafers are expected to fall by 5-10%, and DRAM prices are also projected to drop by an average of 3-8% in the third quarter. PC DRAM prices are forecasted to decline by 3-8% for DDR4 and 0-5% for DDR5. Mobile DRAM is also estimated to fall by 3-8% due to decreased smartphone sales. DRAM is a sector where Korean memory semiconductor companies hold more than 70% market share, making price drops a negative factor for corporate earnings.

Kim Young-woo, an analyst at SK Securities, stated, "This year's DRAM demand composition is expected to be PC 13.2%, server 34.6%, mobile 38.5%, graphics 5.4%, and others 8.2%. There are concerns about a decrease in set sales volume compared to initial expectations, with PC, including laptops, down more than 10%, and mobile down 4%. The only reliable segment is servers, but even Intel's new server CPU launch has been delayed, reducing visibility for a semiconductor market recovery."

◆ Won-Dollar Exchange Rate Surpasses 1,300 Won... What Is the Impact? = Meanwhile, the rising won-dollar exchange rate due to a strong dollar is expected to benefit the semiconductor industry.

On this day, the won-dollar exchange rate in the Seoul foreign exchange market surpassed 1,300 won intraday for the first time in 13 years. With Korea's semiconductor exports expected to maintain a strong growth rate of 10.2% this year, supported by robust foundry demand, the intraday breach of 1,300 won is seen as a positive factor for the industry.

An industry insider said, "Most semiconductors produced domestically are for export. Although some raw materials and parts required for semiconductor manufacturing are imported, the industry generally benefits from a strong dollar because transactions are conducted in dollar terms."

Another industry insider explained, "Semiconductors, which have a large absolute export volume, benefit when the dollar value rises, even if raw materials and equipment are purchased in dollars. However, since semiconductor demand and supply conditions frequently change and exchange rate volatility is high, companies continuously revise their business plans to reflect market conditions."

However, even though the semiconductor sector generally benefits from a rising exchange rate, Samsung Electronics, which operates semiconductor, home appliance, and smartphone businesses together, cannot be said to benefit unconditionally. The set business divisions (MX, CE) are negatively affected in terms of operating profit by exchange rate increases, unlike the semiconductor division.

While a rising exchange rate can be advantageous when selling products overseas, many factories are currently located abroad, and the cost of importing raw materials increases, which can be a burden. Nam Dae-jong, an analyst at eBest Investment & Securities, said, "For Samsung Electronics, the MX, VD, and home appliance divisions may see a decrease in profit margins in the second quarter of this year compared to the previous quarter due to the rising won-dollar exchange rate and raw material price increases."

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