This time was supposed to be different. The memorychip sector, famous for its boom-and-bust cycles, had changed its ways. A combination of more disciplined management and new markets for its products — including 5G technology and cloud services — would ensure that companies delivered more predictable earnings.
Yet, less than a year after memory companies made such pronouncements, the US$160 billion industry is suffering one of its worst routs ever. There is a glut of the chips sitting in warehouses, customers are cutting orders and product prices have plunged.
“The chip industry thought that suppliers were going to have better control,” said Avril Wu (吳雅婷), senior research vice president at TrendForce Corp (集邦科技). “This downturn has proved everybody was wrong.”
Photo: Reuters
The unprecedented crisis is not just wiping out cash at industry leaders such as SK Hynix Inc and Micron Technology Inc, but also destabilizing their suppliers, denting Asian economies that rely on tech exports and forcing the few remaining memory players to form alliances or even consider mergers.
It has been a swift descent from the industry’s COVID-19 pandemic sales surge, which was fueled by shoppers outfitting home offices and snapping up computers, tablets and smartphones. Now consumers and businesses are holding off on big purchases as they cope with inflation and rising interest rates.
Makers of those devices, the main buyers of memory chips, are suddenly stuck with stockpiles of components and have no need for more.
Already, Samsung Electronics Co and its rivals are losing money on every chip they produce. Their collective operating losses are projected to hit a record US$5 billion this year. Inventories have more than tripled to record levels, reaching three to four months’ worth of supply.
Samsung is the only firm that is expected to escape relatively unscathed, thanks to its heft and diversified business, but even the South Korean giant’s semiconductor division is headed toward losses.
“Chip equipment companies’ sales are plunging by around 30 percent to 50 percent. This is not a normal situation,” HMC Investment & Securities Co technology research head Greg Roh said.
The industry is suffering from a unique combination of circumstances — a pandemic hangover, the war in Ukraine, historic inflation and supply chain disruptions — that have made the slump much worse than a regular cyclical downturn.
Micron, the last remaining US memorychip maker, has responded aggressively to plummeting demand.
The company late last month said that it would cut its budget for new plants and equipment in addition to reducing output.
In South Korea, Hynix has also slashed investments and scaled back output. The company’s inventory glut is partly the result of its acquisition of Intel Corp’s flash memory business — a deal struck before the industry’s decline.
All eyes are now on Samsung, which has thus far said little about the industry’s near-term prospects.
The world’s largest maker of chips, smartphones and display panels is set to report fourth-quarter earnings today, followed by a call during which analysts are likely to question its capacity management plans after chip-manufacturing equipment maker Lam Research Corp last week said that it is seeing an unprecedented reduction in orders as memory customers cut and postpone spending.
It has always been difficult for memory makers to handle spikes and troughs in demand. Bringing new factories online takes years and billions of dollars, so it is hard to get the timing right.
The risks have prompted companies in the industry to become more conservative. They are more focused on profitability than trying to grow quickly and gain market share.
That is especially true for DRAM chips, where the three dominant suppliers — Samsung, Hynix and Micron — are reducing supply, Midas International Asset Management Ltd co-chief executive officer Shin Jinho said.
The other major part of the memory market, NAND chips, is more fragmented and is expected to go through a more severe battle as the many contenders fight for survival, he said.
“The NAND market is experiencing fierce competition and the recovery will follow one quarter after the DRAM market recovery,” Shin said. “If the situation gets longer, eventually, we are going to see consolidation in the NAND market.”
Stephen Garrett, a 27-year-old graduate student, always thought he would study in China, but first the country’s restrictive COVID-19 policies made it nearly impossible and now he has other concerns. The cost is one deterrent, but Garrett is more worried about restrictions on academic freedom and the personal risk of being stranded in China. He is not alone. Only about 700 American students are studying at Chinese universities, down from a peak of nearly 25,000 a decade ago, while there are nearly 300,000 Chinese students at US schools. Some young Americans are discouraged from investing their time in China by what they see
MAJOR DROP: CEO Tim Cook, who is visiting Hanoi, pledged the firm was committed to Vietnam after its smartphone shipments declined 9.6% annually in the first quarter Apple Inc yesterday said it would increase spending on suppliers in Vietnam, a key production hub, as CEO Tim Cook arrived in the country for a two-day visit. The iPhone maker announced the news in a statement on its Web site, but gave no details of how much it would spend or where the money would go. Cook is expected to meet programmers, content creators and students during his visit, online newspaper VnExpress reported. The visit comes as US President Joe Biden’s administration seeks to ramp up Vietnam’s role in the global tech supply chain to reduce the US’ dependence on China. Images on
New apartments in Taiwan’s major cities are getting smaller, while old apartments are increasingly occupied by older people, many of whom live alone, government data showed. The phenomenon has to do with sharpening unaffordable property prices and an aging population, property brokers said. Apartments with one bedroom that are two years old or older have gained a noticeable presence in the nation’s six special municipalities as well as Hsinchu county and city in the past five years, Evertrust Rehouse Co (永慶房產集團) found, citing data from the government’s real-price transaction platform. In Taipei, apartments with one bedroom accounted for 19 percent of deals last
US CONSCULTANT: The US Department of Commerce’s Ursula Burns is a rarely seen US government consultant to be put forward to sit on the board, nominated as an independent director Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s largest contract chipmaker, yesterday nominated 10 candidates for its new board of directors, including Ursula Burns from the US Department of Commerce. It is rare that TSMC has nominated a US government consultant to sit on its board. Burns was nominated as one of seven independent directors. She is vice chair of the department’s Advisory Council on Supply Chain Competitiveness. Burns is to stand for election at TSMC’s annual shareholders’ meeting on June 4 along with the rest of the candidates. TSMC chairman Mark Liu (劉德音) was not on the list after in December last