[Why&next] Semiconductor, Unexpected 'Nike Curve'... Economic Outlook 'Low-High' May Be Out of Reach

Despite Semiconductor Bottoming Sentiment, Whether Full Recovery Will Continue Remains Uncertain

Expectations for the so-called 'lower in the first half, higher in the second half' scenario, where the economy would bottom out in the first half of the year and somewhat recover in the second half, are weakening. This is due to the continued sluggishness of the semiconductor industry, which has been a pillar of South Korea's exports, leaving no significant breakthrough in sight. Although the government recently noted a slight improvement in indicators such as semiconductor export volumes, there are no signs of recovery in global demand indicators that could enable a rebound in the semiconductor industry.

Continued Semiconductor Slump... May (-36.2%) → June (-28.0%) → July (-33.6%)

According to the Ministry of Trade, Industry and Energy on the 22nd, exports have declined for 10 consecutive months since October last year. Among the 15 major items, semiconductors (-33.6%) and petrochemicals (-24.5%) experienced significant export decreases. In particular, the export value of semiconductors, the largest export item, dropped by $3.8 billion compared to the same period last year, greatly impacting the overall export decline. Semiconductors have not escaped the slump, with declines of -36.2% in May and -28.0% in June.

The main reason for the sluggish semiconductor exports is weak global demand. Since last year, consumer demand for IT products has slowed due to reduced purchasing power caused by global inflation. According to an analysis by the Bank of Korea, Korean semiconductors are most affected by global smartphone demand (44.0%), followed by servers (20.6%). For smartphones, demand is highest in the US and China, while for servers, the US leads; demand from these two countries has significantly decreased. Additionally, price declines caused by oversupply during the COVID-19 boom have also contributed to poor performance.

The government and the Korea Development Institute (KDI) are focusing on the reduced rate of decline in semiconductor demand. In its August economic outlook, KDI stated that the economic downturn is gradually easing, noting that "indicators suggesting the economic bottom, such as a slowdown in the decline of semiconductor export value and volume, are increasing." The semiconductor export volume index measured by the Bank of Korea (semiconductor export value/semiconductor price index) rose from 8.1% in May to 21.6% in June. Inventory ratios also decreased. According to Statistics Korea, the inventory ratio fell from 80.1% in May to 49.1% in June. This indicates some signs of recovery from the impact that began when semiconductor export declines intensified in August last year.

However, it remains uncertain whether the slump will significantly ease and lead to an improvement in business conditions during the remaining second half of the year. Kim Yang-peng, a senior researcher at the Korea Institute for Industrial Economics and Trade, said, "While it can be seen that the semiconductor industry is passing through the bottom, it does not seem easy to lead to a full recovery," adding, "There are still no signs of increased consumption in personal devices such as smartphones or a revival in demand industries like large-scale server investments by US big tech companies." Ahn Ki-hyun, Executive Director of the Korea Semiconductor Industry Association, also stated, "It is difficult to confirm global market indicators that would verify a recovery in the global semiconductor industry."

Smartphone Shipments at Lowest in 10 Years; Uncertainty in Global Big Tech Investment

This year, global smartphone shipments are expected to hit their lowest level in 10 years. According to global market research firm Counterpoint Research, worldwide smartphone shipments are projected to reach 1.15 billion units this year, the lowest since 2013 (1.049 billion units). The sluggish recovery of the Chinese economy has led to market stagnation and a significant drop in smartphone demand. The delayed economic recovery in China is also expected to be a hindrance. The effect of China's reopening (resumption of economic activities) has been less than anticipated. In the US, purchasing power weakened by inflation has yet to recover.

Investment outlooks for large-scale expenditures by big tech companies, which greatly influence semiconductor demand, are also uncertain. Song Myung-seop, a researcher at Hi Investment & Securities, analyzed in a report last month that the projected change rate in capital expenditure (CAPEX) for 14 major US and Chinese big tech companies is expected to shrink by 0.3% this year. This is because data center investments are unlikely to improve significantly due to overinvestment during the pandemic period. Furthermore, AI semiconductors, which have recently attracted attention in the semiconductor market, are also expected to account for only a small portion of the overall semiconductor industry.

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