The combined operating profit of the semiconductor division of Samsung Electronics and SK Hynix is estimated to reach no less than 20 trillion won in the first half of this year. The boom of the Korean semiconductor industry, however, is predicted to face risks from China in the near future. “The rapid rise in semiconductor prices during last year is because of inventory accumulation on the part of Chinese IT companies and the current boom is only temporary,” UBS Securities mentioned in February this year, adding, “DRAM and NAND flash supply gluts are likely to be witnessed on a large scale in the latter half of this year.”
According to the National Bureau of Statistics of China, the inventory accumulation in China rose from 277.5 billion yuan to a record high of 333 billion yuan between January and August 2015 and then fell to 278.4 billion yuan in the first month of last year before rebounding to 330.5 billion yuan in April this year. The rate of year-on-year increase stands at a single digit or below 0% these days whereas it used to amount to 20% to 50% in 2015. In other words, a significant increase in Chinese IT firms’ inventory is unlikely for the time being. According to industry sources, some of those firms began to cut their production and order less components than before in the first quarter of this year.
Besides, Chinese PC and smartphone manufacturers are in no condition to buy semiconductor chips. According to market research firm Strategy Analytics, only 10 or so, such as Apple and Samsung Electronics, out of more than 300 smartphone manufacturers around the world were in the black in the first quarter of this year. The operating profit ratios of Huawei and Oppo, the two largest Chinese smartphone manufacturers, stood at only 3.5% and 4.7%, respectively.
In the meantime, the DRAM and NAND flash supply volumes are poised to soar in the second half. Samsung Electronics’ new manufacturing facilities in Pyeongtaek City, South Korea are scheduled to be put into operation in July and SK Hynix is currently expanding its M14 plant located in Icheon City. Micron Technology is boosting its DRAM and NAND flash supply as well while Intel is planning to begin NAND flash production in the second half. Chinese semiconductor companies like Tsinghua Unigroup are expected to add to the supply next year.
In view of these conditions, semiconductor prices are unlikely to show a substantial increase in the latter half of this year and later. Market research firm DRAMeXchange recently released data on the average DRAM and NAND flash contract prices for last month and the prices were close to those for the previous month, which means the rise in semiconductor prices that started in the latter half of 2016 has come to a halt.