When Will the Semiconductor Deep Freeze End... Why It Is Difficult to Predict

Semiconductor Market Decline Heard Everywhere
Bleak Earnings Outlook for Samsung Electronics and SK Hynix
Semiconductor Cycle Recovery Difficult to Predict
"Shorter Cycle Period Makes Forecasting Even Harder"

Samsung Electronics Hwaseong Campus view / Provided by Samsung Electronics

[Asia Economy Reporter Kim Pyeonghwa] The semiconductor market outlook is becoming increasingly bleak as inflation and weak demand continue to impact the industry. While various forecasts exist regarding the timing of market recovery, the cyclical nature of the semiconductor industry makes precise predictions difficult. The fact that semiconductor cycles are now fluctuating more rapidly than in the past further complicates forecasting.

Market Outlook Including Memory Looks Gloomy... Samsung Electronics and SK Hynix 3Q Forecasts Also Bleak

According to the semiconductor industry on the 25th, warning signs are sounding from various analytical indicators reflecting the semiconductor market outlook. Market research firm Omdia recently reported that the semiconductor market recorded sales of $151.8 billion in the second quarter, a 1.9% decrease from the previous quarter. Although the decline does not seem large numerically, Omdia explained that the industry has experienced three consecutive quarters of sales decline since the fourth quarter of last year, indicating continued sluggish market conditions.

The World Semiconductor Trade Statistics (WSTS) organization has already joined this outlook by revising down its semiconductor market growth forecasts for this year and next. In August, WSTS adjusted its June forecast, lowering this year’s semiconductor market growth rate from 16.3% to 13.9%, and next year’s growth rate from 5.1% to 4.6%. Particularly, for the memory semiconductor market, which is the mainstay of the domestic semiconductor industry, WSTS projected a growth rate of only 0.6% next year, effectively signaling near-zero growth.

Prices of major memory semiconductor products such as DRAM are also on a downward trend. Market research firm IC Insights stated that the DRAM market uptrend, which began in the second half of 2020 and continued until May this year, has ended, forecasting a decline through early next year. Market research firm TrendForce also predicted DRAM prices will fall through the fourth quarter. All indicators are showing red lights.

As the semiconductor market freezes, earnings forecasts for Samsung Electronics and SK Hynix are also bleak. The operating profit forecasts for the third quarter, traditionally considered a peak season, have been continuously declining over time. Although detailed forecasts vary by securities firms, Samsung Electronics is expected to record operating profits in the range of 12 to 13 trillion won, and SK Hynix around 2 trillion won. In the third quarter of last year, Samsung Electronics and SK Hynix posted operating profits of 15.82 trillion won and 4.17 trillion won, respectively.

SK Hynix Icheon Campus view / Provided by SK Hynix

"You Cannot Solve an Inequality with Two Unknowns"

The semiconductor industry and securities analysts believe that factors such as inflation, weak front-end demand, and inventory increases are impacting the semiconductor market. The semiconductor market typically experiences cycles of ups and downs, and it is now considered to have entered a full-fledged downturn.

Given this situation, forecasts about when the semiconductor market will improve are emerging, but experts agree that accurate predictions are impossible. Lee Joo-wan, a research fellow at POSCO Research Institute, explained that predicting the semiconductor market is like trying to solve an inequality with two unknowns?demand (X) and supply (Y)?to find another unknown (Z). He said, "Inequalities with two unknowns cannot be solved, which is why semiconductor market forecasts are often wrong."

The shortening of semiconductor cycle periods also makes forecasting difficult. An industry insider said, "In the past, there was an 'Olympic cycle' where the cycle fluctuated every four years. Recently, however, the cycle has been going up and down within one to two years, making predictions difficult."

Samsung Electronics and SK Hynix’s willingness to expand investments, such as announcing plans to build new semiconductor factories during a downturn, is also attributed to the challenging nature of cycle forecasting. If investments are neglected while the timing of cycle recovery is unknown, the companies may fail to meet demand promptly when the market recovers. Past examples, such as German company Qimonda and Japanese company Elpida, which were stingy with investments during downturns and eventually exited the market, support this view.

Kyung Kye-hyun, President of Samsung Electronics’ Device Solutions Division, has said, "If you invest less during downturns, it leads to poor results during booms. Rather than relying on market ups and downs, steady investment is the right approach."

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