Is Global Memory Chip Boom Coming to an End?

The prices of memory semiconductor chips such as DRAM and NAND flash chips are likely to fall or show a limited increase in the second half of this year, according to market research firm DRAMeXchange on July 2.

“The increase in price is slowing down although the demand for DRAMs for servers is still on the rise and the demand for mobile chips is increasing based on seasonal factors,” said the firm, adding, “The rate of increase is estimated at 3% or less in the second half as the process yield of major suppliers such as Samsung Electronics is being stabilized regarding 10 nm-class process technology.” It went on to say, “The spot price is showing signs of falling and the NAND flash supply and demand are likely to be balanced in the third quarter to result in no increase in price.”
 

When it comes to DRAMs for PCs (DDR4 4Gb 512Mx8 2133MHz), the price rose at a rapid pace until early last year, by 25.33% in late October 2016, 38.66% in late January 2017, and 12.36% in late April 2017 to be specific. However, the rate of increase stood at 6.13% in January and 3.41% in April this year.

The price of NAND flash chips (128Gb 16Gx8 MLC) has moved sideways since October last year. Still, a drop in price is likely to result in market expansion from mobile and server to PC, which means the growth of the market is likely to continue for a while. In addition, the profitability of major South Korean suppliers is unlikely to be affected by a decline in price. This is because they already enhanced their production efficiency by means of 10 nm-class process technology and their operating profit ratio is already as high as at least 50%.
 

Nonetheless, the semiconductor sector’s contribution to South Korea’s total exports is predicted to fall. Both Samsung Electronics and SK Hynix are failing to show a significant increase in production, unlike in the past, due to difficulties related to microfabrication technology, and this is why it is said that their recent export growth is based on a rise in price rather than an increase in supply.
 

Samsung Electronics’ bit growth for this year is estimated at 20%. That of the South Korean semiconductor industry as a whole used to exceed 30% back in the 2000s but dropped to 10% or so recently. This implies no substantial increase in production is possible without facility expansion. However, facility expansion is not easy as Chinese suppliers are making large-scale investments for massive production.
 

The problem is that South Korea’s exports are excessively dependent on semiconductors. According to the Ministry of Trade, Industry & Energy, the ratio of South Korea’s semiconductor exports to its total exports rose from 15.7% to 21.8% between June 2017 and June 2018.
 

Seeking Breakthrough from Non-memory Expansion

With the current boom in the global semiconductor industry coming to an end, South Korean semiconductor manufacturers are making various efforts to expand their non-memory business.

For example, the foundry business unit of Samsung Electronics is partnering with ARM for MRAM development while working more closely than before with Mentor Graphics with regard to 7 nm and 8 nm LPP foundry solutions. In addition, Samsung Electronics and Qualcomm are stepping up their cooperation in the field of 7 nm foundry. Its foundry business unit is aiming to more than double its sales to at least US$10 billion this year.

The company is seeking new opportunities in the system semiconductor industry as well by, for example, developing its own mobile GPU and working with mobile developers, self-driving vehicle developers, etc. Likewise, SK Hynix is expanding its non-memory business by establishing a joint venture with a Chinese company.
 

“Irrespective of the recent boom with few precedents, the memory semiconductor industry is basically prone to fluctuations common to process industries,” said an industry expert, continuing, “Both SK Hynix and Samsung Electronics are likely to diversify their business portfolios to non-memory for more exports while maintaining their comparative advantages with microfabrication technology.”