[Peace&Chips] The Turbulent NAND Industry... When Will the Market Recover?

Kioxia-Western Digital Merger Falls Through
Samsung Electronics and SK Hynix Reduce Risks

NAND Flash Market Recovery Slower Than DRAM
Q4 NAND Price Increase Expected

Editor's NoteSemiconductors, often called the rice of modern industry. Although it's a term we hear every day, it's hard to explain when asked. Peace & Chips will make the complex concepts and overall industry trends of semiconductors easy to digest for you. Just place your spoon on it.

Last week, news broke that the management integration talks between Japan's Kioxia and the US's Western Digital had fallen through. Japanese media outlets such as Nihon Keizai Shimbun (Nikkei) reported that Western Digital notified Kioxia of its decision to halt related negotiations. It was also explained that the talks failed due to disagreements between Kioxia's largest shareholder (a Korea-US-Japan consortium including US private equity firm Bain Capital) and SK Hynix, which invested in the consortium.

This integration discussion was a big deal that could have overturned the landscape of the memory semiconductor NAND flash industry. Combining the market shares of Kioxia, the second largest in NAND, and Western Digital, the fourth, would have surpassed Samsung Electronics, the market leader. It was also expected to pose challenges for SK Hynix, the third largest, in increasing its market share. This is why the failed merger is being viewed as fortunate domestically.

While Samsung Electronics and SK Hynix have reduced their risks, it does not mean they can be completely at ease. The recovery of the NAND market is slower compared to DRAM, another type of memory semiconductor. In the case of DRAM, positive market changes have appeared, such as price increases for some products and reduced market inventory, thanks to production cuts in the memory industry. SK Hynix succeeded in reducing its deficit by over 1 trillion won in the third quarter and turning DRAM profitable during this process.

Since NAND inventory levels remain high, both Samsung Electronics and SK Hynix have increased production cuts mainly for legacy (older) products. After announcing its third-quarter earnings on the 26th, SK Hynix stated in a conference call, "We plan to maintain a conservative production stance for NAND for the time being," adding, "It will take a considerable period to reach the capacity level of the fourth quarter of last year." The next day, SK Hynix President Kwak No-jung, after attending a semiconductor event, told reporters, "It seems unlikely that NAND will turn profitable by the first half of next year," and "June will be a checkpoint."

Of course, positive forecasts are also emerging in the market. Market research firm TrendForce predicted that the fixed transaction price of NAND (the price for business-to-business transactions) will rise by 10-15% in the fourth quarter compared to the previous quarter. This is based on expanded production cuts and price increase attempts in the memory industry, along with increased NAND demand in recent smartphones. If this forecast materializes, it will mark the first rebound in NAND fixed transaction prices since the decline that began in June last year.

NAND Market Share and Sales Scale in Q2 / [Image provided by TrendForce]

Analyst forecasts are similar. Chaemin Sook, a researcher at Korea Investment & Securities, wrote in a report on SK Hynix's third-quarter earnings, "Although NAND losses have not improved significantly, price declines have stopped," and "From the next quarter (fourth quarter), NAND prices will also shift to an upward trend." Noh Geun-chang, a researcher at Hyundai Motor Securities, also said, "In the fourth quarter, prices of NAND products, which are seeing expanded production cuts, are expected to rebound."

Tomorrow, we need to closely examine Samsung Electronics' third-quarter earnings. Samsung Electronics announced its preliminary third-quarter results on the 11th and will disclose detailed business segment results, including the semiconductor (DS division), on the 31st. The industry expects Samsung Electronics to have recorded an operating loss in the DS division in the trillions of won range. Kim Hyung-tae, a researcher at Shinhan Investment Corp., estimated, "The average selling price (ASP) of DRAM rose by 6%, and NAND ASP increased by 1%."

This article is from [Peace & Chips], published weekly by Asia Economy. Click subscribe to receive articles for free.

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