The memory chip giants are all losing money, and almost every chip is losing money

Reporter | Peng Xin

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Major memory chip manufacturers have recently announced their latest financial reports, showing that the bleak market situation of excess demand has caused the price of memory chips to plummet, and all companies are inevitably affected.

On January 31, Samsung Electronics announced its financial results for the fourth quarter and fiscal year 2022. As of December 31, 2022, Samsung's consolidated revenue for the fourth quarter was KRW 70.46 trillion (approximately USD 57.661 billion), down 8% year-on-year and sequentially, and operating profit was KRW 4.31 trillion (approximately USD 3.527 billion), down 69% year-on-year and 60% sequentially.

Samsung said that the decline in performance was mainly affected by the sharp decline in memory chip prices, coupled with weak smartphone sales. Earnings in the memory business declined significantly due to falling prices and constant inventory adjustments by customers. According to the financial report, the fourth quarter revenue of Samsung's semiconductor division, which covers the memory business, was 20.07 trillion won (about 16.425 billion US dollars), of which the revenue of the memory business was 12.14 trillion won (about 9.935 billion US dollars), which decreased both month-on-month and year-on-year.

Another major South Korean memory chip giant, SK Hynix, also experienced a performance plunge and recorded a loss. On February 1, SK Hynix released its fourth quarter 2022 financial report, achieving revenue of 7.70 trillion won (about 6.301 billion US dollars), down 30% month-on-month and 38% year-on-year; Net loss was 3.52 trillion won ($2.881 billion), compared with a net profit of 1.10 trillion won ($901 million) in the previous quarter and 3.32 trillion won ($2.717 billion) in the same period last year.

Both Korean manufacturers have memory chip businesses in NAND (flash memory) and DRAM (dynamic random storage), and are market share leaders in their fields. In the global NAND market, Samsung Electronics and SK Hynix ranked first and third, with market shares of 31.4% and 18.5% respectively; In the DRAM field, Samsung Electronics and SK Hynix ranked in the top two, with market shares of 40.7% and 28.8% respectively.

Under the dismal performance, the two major manufacturers also have different forecasts for the market situation during the year. SK Hynix is still pessimistic about market demand in the first quarter, and expects that the growth rate of DRAM chip shipments may decline by more than 10%, which is more pessimistic than Samsung's estimate of less than 10%, and expects that the first half of the year will continue to be sluggish.

In addition to the two major Korean manufacturers, Micron, one of the three giants of memory chips, is also affected by the impact of the American memory chip company. Micron's results for the first fiscal quarter of fiscal 2023 ended December 1 showed that its revenue fell 47% year-on-year to $4.085 billion, a loss of $39 million, compared with a net profit of $2.471 billion in the same period in 2021.

"We are experiencing the worst supply-demand imbalance in the last 13 years." Micron CEO Sanjay Mehrotra said at the December 2022 earnings conference. Oversupply also led to lower selling prices, with Micron's operating income down 47% from September to November 2022 compared to the same period last year. As a result, Micron lowered its mobile phone shipment forecast for this year.

Japan's Kioxia, which is involved in NAND flash memory, also reduced wafer input by 30% in October last year, which is its largest production reduction in 10 years. Nobuo Hayasaka, president of the company, said, "The memory chip market is in a very serious situation, and the depth and length of the (adjustment) are not clear. He said that he would adjust the production plan on the basis of paying attention to the market.

As a bulk type of product in the chip, memory chips belong to general raw materials, and the price is determined by supply and demand, and their demand can be regarded as the vane of the overall market conditions of the ICT electronics industry. However, under the background of the "post-epidemic" global consumer electronics demand continues to shrink, the global industrial chain and supply system continue to be affected, coupled with international geopolitics, inflation and exchange rate changes and other factors, memory chip manufacturers have been the earliest and most significant.

In the case of declining demand, memory chip manufacturers have to reduce prices to inventory. According to data from market research agency Jibang Consulting, in the fourth quarter of 2022, the overall selling price of global DRAM products fell by about 20% to 25%, and it is expected to continue to decline by 13% to 18% in the first quarter of 2023; For NAND flash memory, prices will decrease by about 20% to 25% in the fourth quarter of 2022 and by about 10% to 15% in the first quarter of 2023.

At present, all manufacturers are facing widespread losses, and when they will be profitable seems far away, which means that almost every chip produced is losing money.

SK hynix management said that in response to the shift in demand since the second half of 2022, memory chip manufacturers have begun to cut capital expenditures and reduce capacity utilization, but it will take time to produce actual results, and the imbalance between supply and demand has further intensified, resulting in a surge in inventory. Micron Technology and Kioxia have started large-scale production cuts after October, in addition to adjusting their supply by increasing their own inventories, but the reduction in supply has not kept pace with the decline in demand.

However, Samsung's capital expenditure plan for this year has not yet been finalized, and the market is concerned about whether the "king of memory chips" will expand the scale of investment, increase investment in the cyclical Great Recession of the industry, and squeeze competitors.

Memory chip manufacturers' spending cuts have also spilled over to the upstream. Lam Research, a manufacturer of chip-making equipment, said storage customer cuts and delays in spending led to an unprecedented drop in orders. "Customers in almost all areas are cautious, especially memory chip customers, who have not only cut expansion plans, but also reduced capacity utilization to clear inventory." Tim Archer, president and CEO of Lam, said on the earnings conference that he has never experienced such a sluggish demand for memory chips in the past 25 years.

It is worth noting that while manufacturers are cutting production capacity and reducing inventory, large-scale mergers and acquisitions will also occur simultaneously, which is expected to change the industry pattern. NAND and hard drive manufacturer Western Digital recently restarted the process of acquiring Kioxia, and announced on February 1 that it would receive a $900 million investment led by Apollo Global Management.

Historically, when the industry is in a recession cycle, mergers and acquisitions between memory chip companies have occurred from time to time. The merger of Western Digital and Kioxia is to increase market share, strengthen competitiveness and efficiency, and realize multiple advantages such as resource integration and financial consolidation through the merger. If Western Digital merges with Kioxia, it will rival Samsung, which ranks first in terms of share.