Will chip market lose steam next year?

By Lee Min-hyung

Samsung Electronics and SK hynix, the nation’s two largest companies by market capitalization, are expected to face tepid growth in their semiconductor businesses next year, as the global memory chip industry has already reached its peak, according to analysts.

The memory chip giants have enjoyed their heyday this year, as demand for their DRAM and NAND flash chips continued to grow at a robust pace from global customers in sector such as smartphones and servers for enterprises.

This allowed Samsung Electronics to reach a record operating profit of 14.53 trillion won ($13.4 billion) in the third quarter, up 178.48 percent from the previous year. The device solution unit, which manufactures memory chips, drove up its record earnings, taking 68 percent in the quarterly profits.

But analysts said the super memory cycle is unlikely to continue next year, as its price has already reached its peak and demand for smartphones are expected to remain sluggish.

“Prices for Samsung Electronics’ memory chips - driven by DRAM - may continue to rise next year, but its growth will not be as drastic as it has been this year,” KB Securities analyst Nam Dae-jong said. “In particular, demand for NAND chips in use for mobile devices and PCs will weaken in 2018.”

Growing competition from Chinese chip manufacturers will also be a long-term burden for Samsung Electronics, according to the analyst.

“Most Chinese companies will start operating their chip plants in the second quarter next year,” he said. “Even if they have not had enough experience to mass-produce semiconductors, the Chinese government is pushing aggressively for tapping into the chip business, which will pose a threat to existing memory chip vendors over the long-term.”

Korea Investment & Securities analyst Yoo Jong-woo also said the memory chip demand and price next year will not be as robust as they have been this year.

“The memory chip price next year will have a tepid rise amid the weakening demand for memory chips in use for smartphones and servers,” he said.

The dwindling growth for Chinese smartphone manufacturers is also another reason that will hold back the upward momentum of the memory chip industry, he said.

“According to Strategy Analytics, shipments of Chinese smartphones will drop by 4.3 percent in the fourth quarter, compared to the previous year, and this translates into weakening demand for smartphones and memory chips.”

The stock price for Samsung Electronics also dropped to close at 2.41 million won Tuesday, down more than eight percent from a month ago, over continuing reports on the possibly weakening chip prices next year.

Shares for SK hynix, the nation’s second-largest chip manufacturer, also fell to 74,000 won on the same day, down 10.9 percent from the previous month.