Due to Memory Chip Demand
Samsung Electronics and SK Hynix, which have a nearly 70 percent share of the global memory semiconductor market, are expected to see their quarterly Performance reach a record high once again. The business showings of the two companies have hit a new record high every quarter from the beginning of the year. When this trend continues, Samsung Electronics and SK Hynix will make a profit of 47 trillion to 48 trillion won (US$41.5 billion to 42.38 billion) in the semiconductor sector this year alone.
If this is the case, the operating profit from the two companies, semiconductor business will exceed 10 percent of 401 trillion won (US$354.08 billion) of the government’s annual budget as of 2017. The business industry express concerns over the South Korean economy heavily relying on the semiconductor business but says its profits and profit rates are phenomenal.
According to business industry and investment banking industry sources on September 17, the third quarter operating profit forecast of Samsung Electronics and SK Hynix is hitting an all time high every day as the announcement date of the two companies’ third quarter results gets nearer. This is similar to the bid price going up in an auction market. Samsung Electronics will announce its tentative results on October 13.
Japan’s Nomura Securities forecasted on the 14th that Samsung Electronics’ operating profit would top 14.9 trillion won (US$13.16 billion) in the third quarter, the highest figure projected by major securities firms at home and abroad. Other securities companies are continuously raising Samsung Electronics’ profit forecast as well. The forecast figure is being raised to some 14 trillion won (US$12.36 billion) from 13 trillion won (US$11.48 billion) one or two months ago.
Experts believe that about 10 trillion won (US$8.83 billion) of operating profit will come from its semiconductor business. Goldman Sachs said, “Poor sales of the company’s businesses other than semiconductor can be offset by strong performance of its memory semiconductor unit.” Shinhan Investment also said, “Samsung Electronics’ highest quarterly performance will be led by the semiconductor business.” Experts also say that SK Hynix will see its operating profit reach 4 trillion won (US$3.53 billion), continuously breaking its highest ever record.
The two companies’ record-level performance is expected due to stronger demand of memory chips than expected. As the demand of server DRAM chips that are needed to store big data and establish cloud computing systems is surging, the demand of mobile DRAM chips is also in higher demand than expected. Orders are flooding in from software-based global IT companies which need to build a big data center such as Google and Facebook. Mobile DRAM chips also show strong demand, boosted by China’s premium smartphone strategy and Apple’s release of its three new iPhones.
Mirae Asset Daewoo Securities Analyst Do Hyun-woo, who is one of pessimists over the semiconductor market conditions, recently said, “In March, the demand of personal computers and mobile DRAM chips was expected to be down in the second half of this year but the demand of mobile DRAM chips is growing.” He officially admitted that the demand of DRAM chips is higher than his earlier expectations.
Strong demand raised price. According to DRAMeXchange, the fixed price of DRAM chips rose from US$1.5 (1,699 won) last year to US$3.25 (3,681 won) as of the end of last month. The fixed price of NAND flash chips also increased to US$5.78 (6,546 won) from some US$3 (3,398 won) in the first half of last year.
Samsung Electronics and SK Hynix have converted their some PC and mobile DRAM production lines to server DRAM lines in order to meet the rapidly rising demand of server DRAM chips. Accordingly, mobile DRAM chips is in short supply. Lee Se-chul, an analyst at NH investment Securities, said, “The balloon effect has occurred after suppliers are trying to meet a higher demand of one product which leads to other products in short supply.”