Samsung, SK memory chip biz Q3 profitability in question

Samsung Electronics' semiconductor plant in Hwaseong, Gyeonggi Province / Courtesy of Samsung Electronics

By Baek Byung-yeul

Samsung Electronics and SK hynix are expected to struggle with their memory chip business in the third quarter as their customers are carrying a rather high level of inventory due to the COVID-19 outbreak, which has consequently led to a decrease in memory chip prices, according to industry analysts.

However, they added the two companies will soon be able to see a recovery in the chip sector starting in the fourth quarter as the continued number of positive cases of the COVID-19 will boost the demand for contactless services.

Other than the COVID-19 outbreak, Jim Handy, a U.S.-based analyst working for Objective Analysis, said the prolonging dispute between the U.S. and China is another factor making Chinese customer companies of Samsung, SK and other memory chip companies stock more chips in their inventory. And memory chip prices are falling as the U.S. government's threats against China have quietened.

"On August 5, Western Digital announced that its next-quarter revenue would be 11 percent lower than the prior quarter. Last Friday, Micron announced that its earnings for the current quarter (ending August 31) would fall below its original guidance. Samsung will probably get hit with the same thing," the analyst said.

"This stems from an inventory buildup in China when the U.S. was making a lot of threats against Chinese companies. The threats have quietened, and the Chinese companies are reducing their inventories by delaying orders. Their SSD suppliers have fewer orders as a result," he noted.

As the analyst mentioned, DRAM prices had been rising in the first half of 2020. The prices peaked in the second quarter at a time when the emergence of the pandemic impacted the global economy and companies stepped up their efforts to secure more chips over worries of supply chain disruptions.

"In the 2nd quarter of 2020, the emergence of the COVID-19 pandemic shocked the global economy, but OEMs maintained or even stepped up procurement of components because they feared disruptions in the supply chain," a report from industry tracker TrendForce said.

"As a result, DRAM suppliers' shipments surpassed expectations for the quarter, in turn widening the overall increase in the DRAM average selling price and raising global DRAM revenue by 15.4% quarter-on-quarter in 2Q20 to $17.1 billion."

Regarding the performances of Samsung and SK in the third quarter, TrendForce forecast that they "are expected to struggle with profitability. Although they have been optimizing their cost structures, their progress in this area will unlikely be sufficient to compensate for the decline in their average selling price."

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