2019 vs 2023....Semiconductor Rebound Timing Found in 'Similar Patterns'

② Escape from the Bottom as Early as Q4, No Later Than Q1 Next Year

The semiconductor prices, which have bottomed out due to Samsung Electronics' participation in memory semiconductor production cuts, are showing signs of a rebound that closely resembles 2019. According to the 2019 scenario?semiconductor companies experiencing an 'earnings shock' → decision to cut production → narrowing decline in memory prices → inventory reduction → spot price increase → fixed transaction price increase?it is expected that the industry will completely emerge from the bottom and recover the price uptrend as early as the fourth quarter of this year or by the first quarter of next year at the latest.

On the 14th, the semiconductor industry viewed 2019 and 2023 as 'mirror images' of the market conditions. The semiconductor industry, which celebrated a 'record-high quarterly performance' in the third quarter of 2018, announced an 'earnings shock' almost simultaneously in the fourth quarter due to rapidly changing market conditions. Samsung Electronics' operating profit fluctuated from 17.57 trillion won in Q3 to 10.8 trillion won in Q4, and SK Hynix also experienced a profitability reduction of over 30%, from 6.47 trillion won to 4.43 trillion won.

This situation continued into the first quarter of 2019. Amid the unstable global economy caused by the US-China trade war, semiconductor demand could not keep up with supply, leading to double-digit monthly declines in DRAM and NAND prices throughout Q1. Samsung Electronics and SK Hynix saw their operating profits shrink to 6.2 trillion won and 1.3665 trillion won respectively, representing a 60% and 69% decrease compared to the same period the previous year. Facing a crisis that could have led to a transition into losses, the industry's decision was to cut production.

In the first quarter of 2019, production cuts and investment reductions spread across the semiconductor industry, including US-based Micron and SK Hynix, which began to narrow the decline in memory prices. From the second quarter onward, the market recovery followed the sequence of increased semiconductor shipments, reduced company inventories (Q3 2019), stable rise in spot prices (Q4 2019), and increased fixed transaction prices (Q1 2020).

This year, the semiconductor industry is experiencing a similar situation. The industry's performance, which carried the label 'record-high' until the second quarter of last year, began to falter from the third quarter, and by the fourth quarter and the first quarter of this year, the term 'earnings shock' was attached. While most of the industry experienced production cuts and facility reductions in Q4, Samsung Electronics also effectively declared participation in production cuts by stating in Q1 this year that it is "meaningfully adjusting memory production downward."

The difference between 2019 and this year is that Samsung Electronics officially announced production cuts. Since the IMF crisis in 1998, Samsung Electronics had never declared production cuts. Many customers, who account for half of the market, interpreted Samsung's production cut announcement as "semiconductor prices are the cheapest today." For the first time in about 400 days, DRAM prices rose. NAND prices also increased for the first time since December last year.

The cause of this year's semiconductor market deterioration is also the same as in 2019: 'excess supply compared to demand that does not recover.' With Samsung Electronics, the number one player in the memory semiconductor market, effectively joining production cuts from Q1, the dominant view anticipates increased shipments in Q2, reduced inventories of manufacturers in Q3, and stable rises in spot prices in the second half of the year. Choi Do-yeon, head of SK Securities Research Center, said, "The inflection point toward bottom formation has passed with Samsung Electronics' production cut announcement amid the worst memory market ever. If the production cuts are maintained until the second half, customers are likely to begin proactive inventory accumulation from the second half, so a DRAM price rebound can be expected by the end of this year or the first quarter of next year." He also predicted that NAND prices might rebound even faster.

Due to the nature of the memory semiconductor industry, it repeats cycles of boom and bust at regular intervals. What has changed from the past is that the speed of these cycles is accelerating. The memory semiconductor cycle, which used to fluctuate every 18 to 24 months, has shortened to less than a year as the market structure shifted from competition among dozens of semiconductor manufacturers to an oligopoly of a few companies. This also means that the end of recessions could come faster than before.

In fact, the experience of 2019 raises expectations that if the effect of production cuts leads to market recovery, the industry could enter another semiconductor supercycle (long-term boom). The semiconductor market, which temporarily declined in 2019, fully recovered in 2020 and experienced a boom until early 2021. Even if demand recovery is slow this year and the effect of production cuts is not fully realized, the current production cuts will become more evident when demand picks up next year. If competitors who lag behind in technology and scale exit the market during difficult times, the Korean semiconductor industry, which holds technological and scale advantages, could encounter even greater opportunities.

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