Memory semiconductors, bottomed out in 2Q?…Expectations rising about the 2H

Memory semiconductors, bottomed out in 2Q?…

Expectations rising about the 2H

With the all-time depression in memory, Samsung Electronics’ semiconductor sector has recorded an operating loss of over KRW 4 trillion in the first quarter of this year, and interest is being focused on the following performance of the company. SK Hynix has shown an operating loss of as much as KRW 3 trillion in the first quarter of this year. The extent of losses of the two companies for the first quarter is known to be up to KRW 8 trillion.

However, as the full-fledged effects of production cuts are to surface from the second quarter of this year, expectations are high that in the second half of this year, performance will recover. Despite poor performance, Samsung Electronics has implemented the largest scale of quarterly investment, and is posed to prepare for the coming boom.

On April 27, Samsung Electronics announced that for the first quarter of this year, it had achieved revenue of KRW 63.7454 trillion, and operating profit of KRW 640.2 billion. Samsung Electronics’ operating profit for the quarter dropped to less than KRW 1 trillion, which was the first time in 14 years since the first quarter of 2009 (KRW 590 billion).

Notably, performance was the poorest in history in the case of the semiconductor (DS) sector, converting to loss. The operating loss that the DS sector of Samsung Electronics incurred during the first quarter was KRW 4.58 trillion. This was a minus from the same period of the previous year of KRW 8.45 trillion, and the previous quarter of KRW 270 billion. SK Hynix also showed the greatest all-time loss for the quarter. For the first quarter of this year, SK Hynix achieved a business performance consisting of revenue of KRW 5.881 trillion, and operating loss of KRW 3.4023 trillion.

Following the fourth quarter of last year, when a loss of KRW 1.8984 trillion was recorded, losses have been incurred for two quarters in a row. The operating loss rate grew from 24.7% in the previous quarter to 67%. It is the first time in ten years that SK Hynix recorded a quarterly loss. The last time was an operating loss of KRW 15.1 billion in the third quarter of 2012.

l  Production cut effect from 2Q…Reduction in inventory, rebound in revenue

Samsung Electronics gave the outlook that the effects of the cut in semiconductor production would surface in earnest from the second quarter of this year. Kim Jae-joon, Vice President of Samsung Electronics’ Memory Division, said in a first quarter earnings conference call that “Production cuts will lead to a reduction in the level of inventory for the second quarter of this year…Amidst the outlook that clients’ inventory will drop, we hope that there will be a gradual recovery in memory demand from the second half of the year.”

Notably, Samsung Electronics has begun preparing for future growth by implementing the largest scale of quarterly investment, despite poor performance. Samsung Electronics injected KRW 6.58 trillion of R&D investment in the first quarter. This is an amount that exceeds ten times the quarterly operating profit of KRW 640 billion. KRW 10.7 trillion was executed for facility investment, and recorded the largest amount in history for the first quarter. 92% of the facility investment in the first quarter was invested in semiconductors, amounting to KRW 9.8 trillion.

SK Hynix also predicted that “With sales bottoming out in the first quarter, they will grow gradually, and in the second quarter, sales performance will rebound…The market environment will improve from the second half of this year.”

The growth of the market size of high performance servers for AI use, such as Chat GPT, and an increase in clients recruiting high-capacity memory, were also noted as positive factors for the market.

l  Impact of production cuts to become full-fledged in 2Q…Will improve memory inventory

The securities industry is focusing more on the additional production cuts of industry overall, rather than concern over poor 1Q performance. With the impact from the production cuts to become full-fledged in the 2Q, the inventory of memory semiconductors is expected to improve.

“In the second quarter, the growth rate of shipments of DRAM and NAND will record 11% and 6% respectively, and the drop in inventories will begin,” remarked Hi Investment & Securities Co., Ltd. about Samsung Electronics. “The rates of decrease in the Average Sales Price are both at about 10%, which is lower than the prior quarter.”

In addition, orders from clients in Taiwan and China are also increasing. Semiconductor inventory is showing signs of dropping in earnest from the second quarter. Experts say that “From the second quarter of this year, both an increase in client orders and a decrease in semiconductor inventory occurred, and recovery will be one quarter faster than the original prediction…The supply and demand will be actually improved from the middle of this year when the effects of production reduction by semicon companies start to become physically apparent.”

“In the short term, the declining trend in prices shall continue, but the extent of decrease will repeatedly shrink…In the second half, with the effect of demand improvement gradually added, a rebound in the price of memory semiconductors will be possible,” revealed Yuanta Securities Korea Co., Ltd.

SK Hynix is also expected to see a gradual surfacing of the effect of production cuts. “From the fourth quarter of last year, it reduced the loading of wafers for legacy products, and recently, it is making additional reductions of wafer loading focused on products that have high levels of inventory…The effects of production cuts shall become full-fledged beginning from the second quarter,” revealed Hanhwa Investment & Securities Co., Ltd.

With the rapid depletion of inventory, there is high interest focused on whether the balance in memory supply and demand will be recovered. When Samsung Electronics and other entities reduce the supply, the industry situation can be improved, led by the supplier.

“The 2Q operating loss for SK Hynix is expected to be KRW 3.22 trillion, which is a slight improvement from 1Q. The extent of decrease in both DRAM and NAND will shrink, and the valuation loss on inventory assets will also drop compared to 1Q,” said Kim Woonho, analyst at IBK Securities & Investment Co., Ltd.

(Provided by Newsys)