[News Focus] Semiconductor industry back in conservative mode

After successfully bolstering the supply side with aggressive investments over the last six months, the semiconductor industry is again in a conservative mode at least until the second quarter of next year, according to industry sources Monday.

Such conservatism in making new investments is running deep across the memory market, in particular amid growing forecasts of slowing demand in the second half of the year.

According to sources, the world’s two largest memory providers Samsung Electronics and SK hynix are planning to curtail their investments in the memory business in the coming months with the intention of adjusting the balance between supply and demand.

“Due to the expected reduction in memory demand, companies are planning to cut back on their capital expenditure for the rest of the year, and at least until the end of first half of next year,” said Doh Hyun-woo, analyst at Mirae Asset Daewoo Securities during an online seminar.

“That is why the stocks of Samsung and SK hynix have been bearish these days,” he added.

Samsung poured a combined 14.7 trillion won ($12.4 billion) into the semiconductor business in the past six months, including the investment for the expansion of the second lines for memory in Pyeongtaek, Korea, and Xian, China. The total capex also includes Samsung’s spending on the foundry business.

“The company made a whopping 72 percent increase in its capex for the first six months of the year, which has led to greater supplies,” the analyst said.

SK hynix invested 4.6 trillion won during the January to June period, while keeping an extremely conservative tone in terms of capex this year. 

The companies’ massive investments were made in active response to the explosive growth in demand for server DRAMs from data center companies.

Companies like Google, Amazon and Facebook seem to have purchased and built up sufficient memory inventories during the period to serve the thriving non-contact sector amid the protracted COVID-19 pandemic.

“The firms are estimated to have higher-than-usual levels of memory inventories now,” Doh said. “They would supply memory chips themselves for about eight weeks, which would lead to a fall in purchases and prices in the third quarter.”

Internet companies running data centers are major customers of Samsung and SK hynix.

It would be difficult to expect the Korean chipmakers to maintain the current aggressive stance on new investments in the coming months, considering such demand-side factors.

“Due to concerns of a breakdown in the global supply chain of major electronics parts, many of the customers have intentionally built up their memory inventories,” an industry official said. “Thanks to the build-ups, manufacturers here could perform better than other industries during the pandemic in the first half of the year, but the third quarter would be different.”

According to market tracker DRAMeXchange, the spot price of 8-Gigabit DDR4 for PCs continued declining by around 30 percent from $3.6 in April to $2.5 as of Aug. 24.

Some in the financial market make forecast that the DRAM price would fall around 5 percent in the quarter from the current level, and continue to do downhill until the end of the year.

By Song Su-hyun (song@heraldcorp.com)