Significant Lead
An announcement of a cut in memory production by Samsung Electronics which had previously stuck to a policy of no artificial production cuts has widened its gaps with SK Hynix and Micron, both of which are Samsung Electronics’ competitors in the memory industry, industry analysts say. Samsung Electronics’ share of the memory semiconductor market will inflate by at least 1 percent in the first quarter of this year, they forecast.
“We have secured a volume of certain memory products so we will be able to respond to future demand fluctuations,” Samsung Electronics said in an explanatory statement after announcing its provisional first-quarter results on April 7. “Based on this judgment, we are adjusting memory production downward to a meaningful level, focusing on products with secured supply.”
Analysts believe that Samsung Electronics, which had repeatedly emphasized that there would be no artificial production cuts, made the decision to cut production suddenly because it has achieved significant results, including a desired market share, with its holding-off strategy that began in the second half of 2022. Industry insiders say that Samsung Electronics set a goal at a market share lower than 50 percent. They forecast that its market share will be around 47 percent in the first quarter, up from 45.1 percent in the fourth quarter of 2022.
“It is a big challenge to increase or decrease market share by 1 to 2 percent in the memory semiconductor market,” said a semiconductor industry insider. “However, considering the meaningful level, Samsung Electronics seems to have decided to make the cut based on the judgment that its market share gap with its competitors has sufficiently widened.”
According to Taiwanese market research firm TrendForce, among memory semiconductors, Samsung Electronics held a 45.1 percent share of the DRAM market in the fourth quarter of last year, followed by SK Hynix with 27.7 percent and Micron with 23.0 percent. In NAND flash, Samsung Electronics led with a 33.8 percent share in the fourth quarter of last year, while SK Hynix (including Solidigm) came in third with a 17.1 percent share.
In the first quarter of this year, Samsung Electronics’ zero production reduction will have a positive impact on its market share, experts say. Previously, Samsung Electronics benefited from a zero production cut in the second half of last year. Starting from the third quarter of last year when a slump in the semiconductor industry began to start in earnest, SK Hynix and Micron started to cut their chip production, and their market share contracted by 1.1 and 3.4 percentage points, respectively, during the third to fourth quarter period.
On the other hand, Samsung Electronics, which maintained the no production cut policy, gained 4.4 percentage points in terms of market share. In NAND flash, SK Hynix lost 1.4 percentage points while Samsung Electronics gained 2.4 percentage points.
Of course, maintaining a no production cut policy also comes at a cost, as inventory piles up. At the end of 2022, Samsung Electronics’ DS Business Division in charge of the semiconductor business had 29.57 trillion won (US$22.33 billion) worth of chips in inventory. That is volume enough to meet customer orders without production for about five to six months. However, the DS Business Division explained that it stuck to its no-production-cut policy because it believed that gains from an upturn in the semiconductor cycle outweigh immediate losses.
Finally Samsung Electronics made the decision to cut production after seizing an opportunity to widen its competitive gap in the memory market where a game of chicken is played, analysts say. Some people analyzed that a compromise was made at the right time because the excessive inventory can no longer be ignored.
Samsung Electronics is expected to be able to respond to an upturn in memory semiconductors in a timely manner with a higher market share. Industry insiders expect the memory market to rebound in the second half of this year. Samsung Electronics’ performance is expected to improve as the company has secured advanced process products as well as existing products.
“Companies that cut production during a recession may face inventory shortages during a recovery period and they will have no choice but to buy products from companies that have inventory,” said a researcher at the Korea Institute of Industrial Economics.