Not Selling and Piling Up in Warehouses... Industry on Alert Due to Rapid Increase in Inventory Assets (Comprehensive)

25.9% Increase from Last Year-End to 52 Trillion
Impact of Soaring Raw Material Costs and Demand Decline

Set "Recovery Expected" Semiconductor "Not Easy"

Photo of semiconductor process work. (Photo by Asia Economy DB)

[Asia Economy Reporter Moon Chaeseok] Samsung Electronics' inventory assets have exceeded 50 trillion KRW for the first time. The accumulation of inventory in the first half of the year is attributed to concerns over economic recession, rising prices, and uncertainties related to the COVID-19 endemic. Companies are managing the crisis by lowering production operating rates. Finished product (set) manufacturers such as home appliances are cautiously looking forward to recovery in the second half, while semiconductor companies are presenting conservative forecasts.

According to the half-year reports submitted by each company to the Financial Supervisory Service on the 18th, Samsung Electronics' total inventory assets as of the end of June amounted to 52.0922 trillion KRW, an increase of 10.7078 trillion KRW (25.9%) compared to the end of last year. This marks the first time it has surpassed 50 trillion KRW. The growth rates by division were 30.7% for the DS (semiconductor) division, 21.3% for the DX (Device Experience) division, and 21.8% for the Display division. The proportion of inventory assets in Samsung Electronics' total assets rose by 1.9 percentage points from last year to 11.6%.

Not only Samsung but also major companies overall have shown an increase in inventory. SK Hynix, which operates in the memory semiconductor business, reported inventory assets of 11.8787 trillion KRW during the same period, up 33.2% from the end of last year. LG Display, engaged in the TV panel business, also saw its inventory assets increase by 41% to 4.7225 trillion KRW during this period. LG Electronics recorded higher inventory assets at the end of June compared to the end of last year in its home appliance division producing washing machines and refrigerators, TV division, and automotive parts division.

The industry diagnosis is that external adverse factors in the first half had a significant impact on the increase in inventory. Supply chain disruptions caused by the Russia-Ukraine war and other factors led to a sharp rise in raw material costs, while consumer demand decreased, resulting in inventory accumulation across sets and semiconductors alike. Production costs rose, but sales declined, rendering all remedies ineffective.

Companies are accelerating inventory normalization by lowering production line operating rates. Samsung Electronics reduced the operating rate of its mobile phone production line from 81.0% in the first quarter to 70.2% in the second quarter. LG Electronics also lowered the second-quarter operating rates compared to the previous quarter for refrigerators (127% → 119%), washing machines (99% → 81%), and air conditioners (129% → 108%). LG Display's Gumi plant also decreased its operating rate from 100% to 97% during the same period. SK Hynix is reportedly reviewing its capital investment itself. It was reported last month that the board of directors postponed the resolution plan for the expansion of the Cheongju plant in Chungcheongbuk-do as of the end of June. SK Hynix lowered its memory semiconductor demand forecast for the second half during its Q2 conference call at the end of last month. This was a message to investors that the company would adopt a conservative management stance in light of the inventory increase.

Semiconductor companies are overcoming the crisis by continuously releasing high-quality memory products, while set manufacturers are hoping for a market turnaround in the second half. A SK Hynix official said, "Due to global price increases and concerns over economic recession, the IT demand environment in the first half was challenging, and the bit growth (bit shipment growth rate) of DRAM and NAND flash was lower than expected, which affected the inventory increase. However, this is not interpreted as 'oversupply.' The semiconductor market outlook for the second half does not seem very bright, and since customers (set manufacturers, etc.) also have high inventory, we will pursue a management strategy that avoids excessive sales." A set industry official said, "Actively utilizing demand-increasing factors such as the World Cup and Black Friday in the second half will be a key task for set manufacturers to reduce inventory assets."

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