Expectations or Concerns... The 'Unpredictable' Semiconductor Outlook

Different Market Views but Divergent Outlooks
Bloomberg: "Memory Prices Show No Signs of Bottoming Out"
Faster Cycle Periods Make Predictions Difficult

2.7% or -4.0%. These are the growth rate predictions for the global foundry (semiconductor contract manufacturing) market this year from two market research firms. Omdia expects the market to grow by 2.7% this year. On the other hand, TrendForce predicts a negative growth of 4%. The forecasts for the same market are completely different.

Various forecasts are pouring in regarding the timing of the semiconductor market recovery. This phenomenon arises because it is difficult to predict the semiconductor industry conditions. All market research firms and experts agree that the memory semiconductor market will not perform well until the first half of the year. However, opinions differ widely on when the memory semiconductor spring will return.

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Memory Market Forecasts All Negative

Recently, market research firms have released forecasts predicting negative growth for the semiconductor market. Gartner projects -3.6%, IC Insights -5%, and the World Semiconductor Trade Statistics (WSTS) -4.1%. They see the decline in the memory semiconductor market, where Korea is strong, as more pronounced. For example, WSTS expects the memory market growth rate to be -18.7%, as memory is particularly sensitive to economic conditions.

Given this situation, the earnings outlook for related companies is also not favorable. According to financial information provider FnGuide, Samsung Electronics' operating profit forecast for this year is 16.8233 trillion KRW, a 61.22% decrease from the previous year. Negative growth could continue for three consecutive quarters from Q1 to Q3 this year. SK Hynix is expected to experience negative growth for all four quarters, with a high possibility of recording an operating loss of 7.6795 trillion KRW this year.

The background for these consecutive negative forecasts is the sluggish industry conditions. Various adverse factors continue into this year, impacting the market. Global economic recession, inflation, and the Russia-Ukraine war are representative examples. Due to these influences, a vicious cycle of 'decreased IT demand → oversupply → increased inventory → price decline → earnings reduction' continues within the market.

Bloomberg News described this downturn as an unprecedented situation and explained that it is difficult to expect an immediate market rebound. "A clear sign that (market) recovery has begun is when chip price declines stop," it said, adding, "Major memory chips are still under price pressure, so the bottom is not visible." According to DRAMeXchange statistics, DRAM prices have been declining continuously since October last year.

"There Are Opportunities"... Production Cuts, ChatGPT, and DDR5

Conversely, there are also forecasts that the industry conditions could improve soon. This is because memory manufacturers are adjusting production volumes. This year, SK Hynix, US-based Micron, and Japan's Kioxia have all implemented production cuts. Kim Woo-hyun, CFO of SK Hynix, said in a conference call this month, "The impact of industry-wide production cuts will become visible from the first quarter."

Positive market predictions are also coming from the securities industry. Kim Dong-won, a researcher at KB Securities, said, "In the second quarter, memory inventory will decrease and the price decline will slow down," adding, "The semiconductor supply and demand situation is expected to enter an improving trend in the second half of the year."

Inside and outside the industry, attention is focused on whether the ChatGPT effect will improve the market. Big tech companies at home and abroad, such as Google and Naver, are preparing to launch various conversational AI services in response to ChatGPT's popularity. High-performance graphics processing units (GPUs) and memory are essential for these services. Recently, orders for not only GPUs but also high-bandwidth memory (HBM) have increased. Both Samsung Electronics and SK Hynix produce HBM products.

Additional revenue generation in the industry is also an expectation. The latest DRAM standard, Double Data Rate (DDR) 5 products, will start selling in earnest this year. Intel released the server CPU Sapphire Rapids, which is used with DDR5, earlier this year. DDR5 is three times more profitable than the previous DDR4. For memory semiconductor companies, it is an opportunity to increase earnings through high value-added products. No Geun-chang, a researcher at Hyundai Motor Securities, predicted, "Server DDR5 demand will increase from the third quarter."

Faster Cycle Periods Make Forecasts Increasingly Difficult

The industry cites the accelerated cycle periods as the reason for the increasing number of conflicting forecasts in the market. The semiconductor industry is a representative cyclical sector. Market downturns and growth follow a wave-like pattern. In the past, the market showed ups and downs on a four-year cycle (Olympic cycle). Now, with cycles changing rapidly every six months to a year, it has become difficult to predict. Some even say, "We can only look ahead to the next quarter."

The changing industrial environment is accelerating the cycle periods. As semiconductors have become core assets of national security, political, diplomatic, and cultural factors also influence the market. In the past, price fluctuations affected the cycle, but now various variables must be considered together. The fact that applications using memory have become more diverse than before also has an impact. However, the common industry opinion is that difficult market conditions will continue until the first half of the year.

Park Myung-su, head of DRAM marketing at SK Hynix, said in a conference call last month regarding the cause of this market downturn, "It is not just volatility specific to memory but broad volatility across the macro environment, including geopolitical issues."

Samsung Electronics and SK Hynix have already announced related forecasts when releasing their Q4 results last year. Kim Jae-jun, vice president of Samsung Electronics' Memory Business Division, said, "With the overall industry inventory levels increasing, we expect short-term inventory adjustments to continue." He added, "After inventory adjustments, customer sentiment recovery is expected, but additional observation is needed to see if demand improves depending on economic conditions and changes in consumer sentiment."

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