Semiconductor Exports Hit Red Light: "Good Times Are Over" vs. "Base Effect"

Provisional August Semiconductor Exports Down 7.5%... Shift from 25 Months of Consecutive Growth
Concerns Rise Over Memory Semiconductor Slump Due to China Impact
"Consider Last Year's Strong Growth" Advised

Semiconductor photo / Source=Pixabay

[Asia Economy Reporter Kim Pyeonghwa] The semiconductor exports, which had surpassed $10 billion (13.325 trillion KRW) for 15 consecutive months, have hit a red light. Various indicators for the semiconductor industry in the second half of the year are showing negative signs, and with product demand expected to remain sluggish, semiconductor export figures for the latter half of the year are anticipated to decline further. Amid the 'three highs' crisis of high inflation, high exchange rates, and high interest rates, which is causing an overall economic contraction, the bleak outlook for semiconductors?once a pillar of South Korea's exports?adds significant concerns for the Korean economy. However, some experts suggest that the base effect should be considered, given that last year's export figures showed remarkable growth.

Negative Growth in Semiconductor Exports for the First Time in 26 Months... Memory Semiconductor Price Decline Influenced by China

According to the semiconductor industry on the 28th, domestic semiconductor exports are expected to record a deficit starting in August. After 25 consecutive months of growth until July, there is a forecast that August will mark the first month of negative growth.

Preliminary export performance data from the Korea Customs Service for the period from the 1st to the 20th shows semiconductor exports at $6.271 billion (8.3548 trillion KRW), reflecting a -7.5% growth rate compared to the same period last year. After peaking at 36.9% in March, the growth rate declined, showing single-digit growth of 2.5% in July, which signaled the onset of negative growth.

This is attributed to the high proportion of semiconductor exports to China. China accounts for 40% of South Korea's semiconductor exports, reaching 46.3% in July. The ongoing lockdown measures due to the spread of COVID-19 in China and sluggish local consumption have impacted exports. The export growth rate to China has also been negative since April this year due to these factors.

The decline in market prices, especially for memory semiconductors, is also influencing the trend. In July, domestic memory semiconductor exports amounted to $5.27 billion (7.0212 trillion KRW), down 10% from the same period last year. As a major product accounting for 45.87% of total semiconductor exports of $11.49 billion (15.3081 trillion KRW), the recent decrease in demand has led to increased inventory and a chain reaction of price drops.

According to market research firm DRAMeXchange, the average fixed transaction price for PC DRAM general-purpose products (DDR4 8Gb) in July was $2.88 (3,837 KRW), down 14.03% from the previous month. The average fixed transaction price for NAND flash (MLC 128Gb) was $4.49 (5,982 KRW), also down 3.75% from the previous month. Taiwanese market research firm TrendForce has forecasted that prices for DRAM and NAND flash could decrease by up to 18% each in the third quarter compared to the previous quarter.

NAND Flash Q3 Price Forecast / Source=TrendForce

Cloudy Semiconductor Market in the Second Half, and Exports Too?..."Base Effect Needs to Be Considered"

With the semiconductor market outlook, especially for memory semiconductors, looking unfavorable in the second half, the red light on exports is a negative sign. Recently, the World Semiconductor Trade Statistics (WSTS) lowered its semiconductor market growth forecast for this year from 16.3% to 13.9%, a 2.4 percentage point drop. The memory semiconductor market growth rate was cut sharply from 18.7% to 8.2%, a 10.5 percentage point decrease. The growth forecast for the memory semiconductor market next year has fallen to 0.6%. These factors fuel concerns that the negative growth trend in semiconductor exports may continue for some time.

However, some assessments suggest that the negative growth in export figures should not be overinterpreted given the current situation. Last July and August were seasonal peak periods, with semiconductor export growth rates of 38.0% and 41.1%, respectively, exceeding the annual growth rate (28.1%) by more than 10 percentage points. While the semiconductor market may face challenges for a while, this can be seen as a normalization following a period of overgrowth.

Kim Yangpaeng, a senior researcher at the Korea Institute for Industrial Economics & Trade, said, "Since last year's figures were high, the negative growth rate in August this year can be seen as a base effect. Even if the estimated growth rate is minus 7% in August, exports are expected to exceed $10 billion."

The semiconductor industry also notes that judging business flow solely by monthly statistics is difficult, so it is premature to say the situation is bad right now. However, given the less-than-bright market outlook for the second half, they emphasize the need for responses to the Chinese market and management of memory semiconductor inventory.

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