Kazunori Ito, a researcher at Morningstar, declared that the latest results reported by South Korean memory companies have proven that the memory industry had hit the lowest point as predicted. SK Hynix's DRAM sector reported a profit in the third quarter, higher than what analysts had forecasted for Samsung's operating profit. This is due to chip producers reducing manufacture to rid of the excessive inventories.The recent earnings calls from the two biggest memory chip manufacturers indicate that weak demand may have hit rock bottom. Samsung observed a 262.6% jump in third quarter operating profits in comparison to the second quarter. During the first quarter, the company's operating profit had decreased by 85.15% compared to the preceding quarter. The second quarter saw a slight 4.68% increase on the figures from the first quarter.SK Hynix shared in its quarterly report that its Dynamic Random Access Memory (DRAM) operation transitioned from a loss-making to a profitable one in the third quarter after incurring losses in the first two quarters of the year. James Lim of Dalton Investments, when speaking to CNBC, said that "inventories at PC and mobile customers have dropped significantly, which is leading to memory price recovery." The two South Korean companies are the world's biggest memory chip producers right now, followed by US company Micron, as accrording to TrendForce's data.Memory chip makers have been limiting production to get rid of additional inventories that were built up due to the massive pandemic-related increase in electronics demand, and subsequently reducing their respective inventories as consumer spending has been stunted by inflation.
The recent earnings calls of the world's two largest memory chipmakers suggest that weak demand has likely reached a nadir. Samsung saw a 262.6% uptick in its third-quarter operating profits compared to the prior quarter. The first quarter had recorded a 85.15% decrease compared to the quarter before, while the second quarter's operating profit saw a slight 4.68% increase. SK Hynix, in its quarterly announcement, pointed out that the DRAM branch of its business had turned profitable in the third quarter after being loss-making in the first two quarters of 2020. Explaining the cause of memory chip price recovery, James Lim, senior research analyst at Dalton Investments, told CNBC that "awareness is spreading in the industry that supply reduction can bring up memory prices and inventories at PC and mobile customers have dropped considerably." Samsung and SK Hynix are currently the top two DRAM chip makers around the globe, according to data from market research firm TrendForce, while US-based Micron trails in third place. Memory chip manufacturers have cut production to eliminate the excess inventories amassed because of the abrupt rise in electronics demand caused by the pandemic, and sliding consumer expenditure due to inflation has further reduced demand for memory chips.
Kazunori Ito, director of research at Morningstar, commented that the memory industry had arrived at the bottom as predicted when earnings calls were taken into account. In a Nov. 1 report, Ito remarked that the average selling prices (ASPs) of DRAM had risen in the mid-single digits for Samsung and 10% for SK Hynix, representing the first price increase in eight quarters for Samsung. Ito stated that minor adjustments had been made to the earnings forecasts for South Korean memory suppliers. Moreover, Morningstar deemed Samsung's shares to be undervalued and the shares of SK Hynix to have a potential upside of 18%-20% relative to the firm's fair value estimate. Other chipmakers have also given positive outlooks. The largest contract chipmaker, Taiwan Semiconductor Manufacturing Company (TSMC), surpassed analysts' expectations and suggested that the dark period for the chip industry may soon be coming to an end. TSMC manufactures the most advanced processors for such companies as Apple and Nvidia founded on Arm's architecture. to buy
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Qualcomm, a U.S.-based company, gave a positive forecast for the current quarter, which points to an impending chip recovery. The firm manufactures processors that power most top-grade Android gadgets and some lower-end phones. Morningstar's Ito remarked, "Even though inventory levels reached their zenith in mid-2023, they still remain high, particularly for NAND [flash memory]." NAND is a kind of memory chip that is usually used along with DRAM in PCs, servers, and smartphones. Unlike DRAM, NAND does not require power to keep data. Ito further stated, "This should be beneficial for memory prices because of the restricted availability." TrendForce predicted that memory suppliers would decrease their production of both DRAM and NAND Flash throughout 2024, particularly in the "underfunded NAND Flash sector." The research organization also forecasted that demand for DRAM and NAND Flash would expand by 13% and 16% respectively in the same year.
SK Hynix announced in its earnings report that demand for high-performance chips used in generative AI applications has been strong in the third quarter, counterbalancing the slower sales of chips in PCs and phones. According to Lim from Dalton Investments, servers are driving the AI demand too. Large language models like ChatGPT require lots of memory chips to remember details such as past talks and user preferences, thus creating artificial responses that mimic human interactions.
DRAM business is anticipated to stay on a growth trend thanks to the booming AI industry. SK Hynix expressed in a statement that the NAND flash industry, still undergoing losses, is showing signs of recovery. With regards to memory demand, Samsung predicts an increase during the fourth quarter due to year-end deals, new products released by major customers as well as the strong necessity of generative AI.
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