Korean Economy News
Samsung Electronics begins to roll back chip inventory in line with down cycle

Lee Sang-duk and Cho Jeehyun

The world’s largest memory chipmaker Samsung Electronics Co. has taken steps to adjust down capacity starting with rollback in inventories as it braces up for a bumpy down cycle, a move that could affect the global value chain, supply levels, and prices.

According to internal sources, the chip behemoth will significantly cut inventory cycle for DRAM and NAND flash chips to 15 days from typical 45 days for DRAM and 90 days for NAND.

The company that dominates 45.5 percent of the DRAM market and 38 percent of NAND usually stocks up inventories to comfortably meet demand.

The chipmaker began clearing out inventories as the memory market after two bumper years has entered a downturn from the fourth quarter after big IT names like Google and Amazon scaled back CPU orders for data center investments. Ongoing trade war and struggle over technology hegemony between the United States and China have also dented demand for chips. Stagnant sales of smartphones also contributed to reduced demand.

Prices already have been skidding. According to market research firm DRAMeXchange, the price of 8-gigabyte DDR4 DRAM memory chips that averaged $8.19 in September slipped to $7.31 in October and $7.19 in November. The price rose slightly to $7.25 in December.

Industry experts forecast the softening in memory chip prices to continue throughout the first half of 2019.

Samsung Electronics’ chip inventories hit record-high of 10.45 trillion won ($9.3 billion) by September last year. Of this, 1.6 trillion won worth is in finished form and 7.97 trillion won worth in intermediate state.

Inventory rollback, which is necessary to reduce fixed cost and defend the bottom line during weak cycle, often leads to cutback in wafer production. Samsung Electronics is expected to adjust supply levels until signs of pickup in demand.

Samsung Electronics due to release preliminary earnings for the fourth quarter on Jan. 8 is estimated to have earned 13.97 trillion won in operating profit and 63.83 trillion won in sales in the final quarter, which would be down 7.6 percent and 3.2 percent on year.

On Thursday, Samsung Electronics shares lost 2.97 percent to close at 37,600 won.

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