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Samsung, SK Hynix brace for chip price falls on upgrades

Jeong-soo Hwang Aug 22, 2020 (Gmt+09:00)

Oversupply and higher inventories of memory chips have clouded the business outlook for chipmakers, including Samsung Electronics Co. Ltd. and SK Hynix Inc., dragging down both DRAM prices and the companies' share prices this month.

Tightened US restrictions against China’s Huawei Technologies Co., a key customer of the South Korean chipmakers, added to concerns about falling demand for memory chips, coupled with the negative impact of the coronavirus pandemic.

In response, both Samsung and SK Hynix have turned cautious on facility investment. But they will push ahead with highly-advanced chip rollouts to prepare for the release of upgraded smartphones and computer servers later this year, which should bolster the bottom line, their officials said during second-quarter conference calls late last month.

Samsung plans to produce fourth-generation DRAM memory chips using extreme ultra violet processing technology next year. The 10-nanometer Double Data Rate 4 (DDR4) DRAM is expected to lessen production time by 20%, compared to third-generation DRAMs.

As for SK Hynix, it began mass-producing the world’s first 128-layer NAND flash chips last year, the upgraded model of the current market’s mainstay product, the 96-layer NAND flash chip. The flash memory market's switch into 128-layer chips should help offset the impact of a drop in average chip prices, semiconductor industry sources say. They expect DRAM prices to rebound as early as the first quarter of next year.

“Technology upgrades will improve their profit margins,” said a semiconductor industry source. “Price falls will worsen their results, but the pace of price drops overall may not be as fast as expected.”

Shares in SK Hynix gained 3.8% to close at 74,500 won on Aug. 21, snapping a seven-day losing streak. SK Hynix shares had lost 13% between Aug. 1 and Aug. 20. Samsung Electronics ended flat at 55,900 won on Aug. 21, after declining 6% this month until Thursday's close.

Chip prices


After delivering above-forecast second-quarter results, chipmakers turned cautious on third-quarter shipments, citing oversupply and stockpiling by their customers such as Intel Corp. and Microsoft Corp.

Micron Technology Inc. Chief Financial Officer Dave Zinsner said in an online conference last week that the company was unlikely to meet its revenue forecast of $5.4 billion to $5.6 billion for its quarter ending end-November.

His comments marked an abrupt U-turn from upbeat forecasts on server DRAM demand just a few weeks ago, sending shares of the third-largest DRAM chipmaker, as well as Samsung and SK Hynix, lower on the day.

DRAM prices have been in a downward spiral, with spot prices down 30% from their peak. Contract prices of DRAM chips, or prices settled between buyers and sellers, have recently turned lower for the first time in nine months.

According to DRAMeXchange, a market research firm, the spot price of DDR4 8Gm, a type of memory commonly used in desktops, was quoted at $2.54 per unit on August 21. It has been flat to lower since touching $3.64 on April 3. Spot prices reflect real-time trading prices and serve as a leading indicator of contract prices.

In July, DRAM contract prices dropped by 5.44% month on-month to $3.13, the first monthly decline in contract prices in nine months since October 2019 when prices slid 4.42%.


Aggressive expansion in data centers from cloud service providers such as Google, Amazon and Facebook were behind the 17.8% jump in DRAM spot prices in the first half. They have also accumulated server DRAM inventory to meet rising data use during the non-contact service boom of the first half.

Their combined server DRAM inventories are enough to cover seven-to eight-week demand, versus a four-to five-week stockpile in May.

Chip inventories at Samsung Electronics were worth 12.4 trillion won ($10.4 billion) at the end of June, up 4% from the end of last year. Those of SK Hynix rose by 9.8% to 5.8 trillion won during the same period.

Apple Inc. and Huawei's postponement to ship their premium products to later this year may continue to weigh on chip prices this quarter, combined with an expected drop in demand from Huawei amid the US-China trade war.

SK Hynix expected chip prices to bottom out in the second half and stage a recovery next year.

In second-quarter conference calls late last month, Samsung Electronics and SK Hynix said that the chip price correction would not last long, betting on a rebound in mobile DRAM demand with the upcoming release of five-generation smartphone models and steady demand for server DRAMs.

“The release of Intel’s new server CPU (central processing unit) model at the end of this year will spur investment in servers again. Smartphone makers will also be in a rush to roll out new products to make up for this year's sluggish sales,” said Park Yoo-ahk an analyst of Kiwoom Securities.

TrendForce, a research company, on August 18 further revised down its forecast of a 0.8% quarter-on-quarter decline in server shipments in the current quarter to a 4.9% fall, citing a slowdown in server procurement orders from companies.

Write to Jeong-soo Hwang at

Yeonhee Kim edited this article

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