Looming 'chip super-cycle' to hike prices benefiting Samsung, SK

By Baek Byung-yeul

With the stay-at-home lifestyle now established throughout the world as people seek shelter from the COVID-19 pandemic, Korea's foundry and memory chip businesses are seeing explosive chip demand, industry analysts said Tuesday.

They indicated both the foundry business, which manufactures semiconductor chips based on the orders of chip design firms, and memory chip business are riding on the so-called semiconductor super-cycle thanks to rising chip demand.

It has been almost three years since the chip industry began to struggle in the aftermath of the 2017-2018 semiconductor super-cycle.

According to reports from thelec, a local tech media outlet, local foundry company DB HiTek notified its customers recently that it would increase the unit cost of production by up to 20 percent next year, and its customers accepted the proposal as there are no alternative foundry firms.

As seen in the DB HiTek case, industry analysts said Samsung Electronics, SK hynix and other chip companies will likely benefit next year from the rising demand for semiconductors.

Among the chip companies, Samsung Electronics will become the main beneficiary of the looming super-cycle.

Samsung's foundry business is increasingly securing chip-manufacturing orders from global chip design giants such as Intel, Qualcomm and Nvidia.

The company reportedly started volume production of Qualcomm's latest application processor Snapdragon 888 at its 5-nanometer production line. Analysts said Samsung also recently received the second production order to produce Nvidia's graphics processing units, beating the market expectation that Samsung's arch-rival TSMC would take the production order.

Samsung holds the second-largest market share in the foundry business following TSMC. In the third quarter, Samsung is forecasted to hold a 17.4 percent share in the global foundry market while leader TSMC is expected to hold a dominant 53.9 percent share, according to market researcher TrendForce.

Given the U.S. Commerce Department recently blacklisted dozens of Chinese tech firms including the largest chipmaker SMIC, preventing them from accessing technology to produce semiconductors at the advanced level of 10-nanometer or smaller, analysts said Samsung's market share in the foundry business will be much bigger in 2021.

Also, Microsoft's recent announcement that it has been working on in-house processor designs for use in its Azure cloud servers, instead of using Intel chips, has stirred expectations that Samsung could see improved chip-making orders.

While Samsung Electronics is expected to benefit from the chip super-cycle, SK hynix is also forecasted to enjoy rising memory chip demand next year.

Thanks to the favorable market forecast, the stock price of SK hynix improved by around 40 percent from about 80,000 won per share in November to 112,500 won on Dec. 22.

Industry analysts said the company's fourth-quarter sales will be at around 7.5 trillion won and operating profit at 703.4 billion won, higher than previous market consensus. They said the improved performance stems from rising bit growth, which is a barometer measuring the health of the semiconductor market.

The sales expectation of PCs in the year-end and the beginning of the year are improved compared with the previous market forecasts, and Chinese smartphone makers including Oppo, Vivo and Xiaomi are trying to increase their inventory of memory chips earlier than the expected,” said Park Yoo-ak, an analyst at Kiwoom Securities.

“The company's cloud-computing customers such as Amazon are investing in their servers before the year-end shopping season, which makes the company see improvements in every part of its business areas,” the analyst added.

Another local foundry company DB HiTek also has been enjoying explosive demand for analog chips, which are used to measure temperature, heart rate and light.

The company announced its third-quarter sales came at 240.6 billion won, an 8 percent year-on-year increase, while it posted an operating profit of 67.1 billion won, up 9 percent from a year earlier.

DB HiTek said the demand for its chips is on the rise this year as more Internet of Things (IoT) devices are used. Also, smartphones are increasingly featuring more functions, consequently boosting the demand for analog chips.

Thanks to the increased demand, DB HiTek said it expanded production capacity for analog chips to 7,000 and will continue to enlarge its wafer capacity to meet the demand.