DRAM prices rebound on Samsung output cut; earlier recovery eyed

Memory chip prices are staging a rebound for the first time in more than a year following Samsung Electronics Co.'s near-term production cut, boosting hopes for a sooner-than-expected market recovery.

While most industry officials expect a meaningful chip industry rebound early next year, some analysts said chip prices and the overall market could start improving as early as the third quarter of this year.

According to market data provider DRAMeXchange, the spot price of DDR4 16Gb 2600, one of the most common DRAM products, rose 0.78% to $3.24 on Tuesday, posting its first price gain since March 7, 2022.

Although contract prices remain subdued, with DDR4 8Gb hovering around $1.8, down from a high of $4 early last year, price gains in the spot market signal trader sentiment is improving, analysts said.

Spot prices are often a leading indicator for long-term contract prices.

Industry officials said semiconductor prices are showing signs of a rebound after Samsung, the world’s biggest memory chipmaker, last week said it was paring chip output to tackle a supply glut and a pullback in customer demand.

Last Friday, the South Korean tech giant pledged a “meaningful” reduction in semiconductor production after posting its worst quarterly operating profit in more than a decade.

Samsung didn’t provide details such as the size of reduction volumes or the type of products affected, but industry officials said the company would be slashing wafer input for DDR4 DRAM chips by about 15-20% over the next six months.

While rivals such as Micron Technology, Kioxia and SK Hynix Inc. have already begun slashing their investment and production, Samsung has been holding out, using the current market downturn as an opportunity to expand its market share lead so it can take advantage of an eventual rebound in demand.

Samsung said it would continue investing in infrastructure to secure essential cleanrooms and expand R&D spending to strengthen its technology leadership.

SHARES RISE, TARGET PRICES UP

Samsung’s decision to cut output is positive for its rivals and the entire industry, analysts agree.

On the day Samsung announced its production cut, its shares rose as much as 4.7% – the biggest percentage gain in seven months – to 65,200 won ($49). In overseas stock markets, shares of major chipmakers such as Micron and Western Digital also surged earlier this week.

Analysts said Samsung’s action should remove any concern with respect to irrational supply behavior and help turn around the largest memory supply imbalance in decades.

“Samsung’s decision will have a significant impact on the memory market. Memory players will see their return to profit earlier than expected,” said an SK Hynix executive.

Citing a boost from the Samsung output cut, Goldman Sachs lifted its target price for the company to 77,000 won from 74,000 won earlier, while HSBC raised its Samsung price target to 88,000 won from 75,000 won.

Goldman said in a research note it expects the industry’s inventory level to start declining in the second quarter when Samsung’s earnings will likely bottom out.

Citibank, while raising its target for Samsung to 87,000 won, has offered a target price of 102,000 won based on its best-case scenario.

INQUIRIES COMING IN

Samsung said it is receiving a growing number of inquiries from its clients over DDR4 DRAM chip purchases after its pledge to cut production.

The company said a supply reduction would lead to the depletion of inventories at its customers and the resumption of purchases, ultimately improving the overall semiconductor market.

“DRAM suppliers’ inventories will peak in the second quarter before declining in the second half,” said Shinyoung Securities analyst Seo Seung-youn. “The memory market will stage a gradual recovery in the third quarter.”

Market tracker TrendForce said earlier this month that prices of DRAM memory chips, widely used in smartphones, PCs and servers plunged about 20% during the first quarter, while prices for NAND flash chips used in data storage fell about 10-15%.

Memory chip prices will remain subdued in the second quarter, it said

Write to Jeong-Soo Hwang, Ik-Hwan Kim and Ye-Rin Choi at hjs@hankyung.com

In-Soo Nam edited this article.