Memory chip producers are trying to counter demand reduction and price drops

Memory chip producers are trying to counter demand reduction and price drops

Because of several consecutive months of decline in the prices of electronic components, the largest producers of memory chips, including Samsung Electronics and Micron Technology, have published grim forecasts and reduced already low estimates for the upcoming profits. Other companies have announced plans to cut production to avoid further over-saturation of the market.

The memory chips used in smartphones, PCs and servers are one of the key health indicators for the semiconductor industry, and there is a shift from pandemic-induced growth to a sharp drop in demand. Between July and September, average contract prices for the two main types of memory, DRAM and NAND, fell by 15% and 28% respectively, calculated by TrendForce analysts. This trend will remain relevant in the fourth quarter of the current year and the next year, and only by the end of 2023 should the negative trend be expected to slow down or even stop altogether.

Samsung, the world ' s largest memory chip producer, recently reported that the operating surplus from the third quarter had dropped by 32% according to preliminary estimates. His American rival, Mikron, did not report positively at the end of September, and the forecast for the current quarter was rather low. SK Hynix, the second largest company in the world, is preparing to report a 40 per cent drop in annual revenues, is confident by FactSet analysts.

The prices of memory chips began to fall at the end of last year. Compared to other semiconductor components, they are less differentiated, so demand fluctuations are particularly acute. The memory accounts for 27% of the revenues of the semi-conductor industry, which is $619 billion in 2022, says Gartner analysts – the market also includes processors and image sensors, and the largest players are Samsung, SK Hynix, Mikron and Intel. In general, the industry has experienced rapid growth since the pandemic, but this year the situation has changed: inflation and geopolitics have become powerful negative factors, which in turn have brought down demand for PCs, smartphones and gamers.

After a segment of memory chips, other areas of the electronics market are beginning to show negative dynamics: AMD reported that third quarter revenues would be significantly lower than expected. Pessimism also shows stock market performance: prior to the AMD stock share, NVIDIA lost 13% of its value, NVIDIA's securities sold 7%, and Mikron's securities more than 3%. Another major negative factor was the US sanctions imposed on China. However, there is also a way to stop the decline in output, and the Japanese Kioxia has already used it, promising to reduce the volume of memory chips by 30% in October.

The head of the company, Mikron Sanjay Mehrotra, recently stated that the company would reduce production costs and reduce supplies in the short term, although the memory market would still be ready for significant growth in the coming decade. The company's capital investment in the current fiscal year would be $8 billion, 30% lower than the year before, and the industry is still waiting for growth in the long term – the same Mikron is preparing to spend up to $100 billion on a new DRAM plant in New York State. Major investments are also being considered in Intel, Samsung and TSMC.

However, one of Samsung ' s top managers recently noted that the company ' s policies did not involve a deliberate reduction in production, and there was no need to abandon the strategy. SK Hynix did not provide a direct answer to the same question, but indicated a willingness to adopt flexible policies depending on market trends.