Tuesday, July 23, 2019
Semiconductor Suppliers Curtailing Investments
Preventing Further Drop in Chip Prices
Semiconductor Suppliers Curtailing Investments
  • By Kim Eun-jin
  • January 30, 2019, 08:49
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Semiconductor manufacturers are scaling back their investments this year to dispel concerns about the contraction of the market.

Semiconductor manufacturers such as Micron Technology, Nanya and SK Hynix have announced plans to reduce their investments this year. Specifically, Micron Technology is going to reduce its DRAM and NAND flash investment by US$1.25 billion compared to its previous plan. Nanya and SK Hynix are planning on a 40 percent reduction each. Samsung Electronics is likely to follow suit.
 

Experts point out that the companies dominating the global memory chip market are doing so in order to dispel worries about the upcoming contraction of the market and assure clients and investors that the market will rebound in the second half of 2019. “It seems that the companies are planning to prevent a further drop in memory chip price by adjusting their supply,” one of them said.

At present, a tug of war is going on in the market over the memory chip price. Clients such as smartphone manufacturers are postponing their purchase, anticipating a further decline in price. The unit price of DDR4 8Gb DRAM, which had been US$8.19 in September 2018, fell to US$7.25 in December 2018. The sluggish demand and decline in price are likely to continue until the first half of 2019 with clients concentrating on inventory reduction.

Their move has to do with their stock prices, too. In other words, it is to alleviate stock market participants’ concerns over the semiconductor industry. Semiconductor manufacturers’ stock prices plummeted in the second half of 2018 due to a business slowdown, but the stock prices are rebounding these days. This implies memory chip makers’ proactive supply control can lead to stable business conditions in the second half of 2019.

The stock prices of Samsung Electronics and SK Hynix hit 52-week lows on Jan. 4 and have gone up since then. The Philadelphia Semiconductor Index is rising as well. Specifically, the index rose from 1,069.39 points on Dec. 24, 2018 to 1,254.40 points on Jan. 28, 2019, signaling that the performance of semiconductor companies will get better.
 

Samsung Electronics, SK Hynix and Micron Technology can resort to the price control strategy because they are oligopolistic players in the global DRAM market. Their combined market share amounted to 95.5 percent in the third quarter of 2018. The oligopoly is likely to further expand with time as Chinese semiconductor manufacturers are being affected by the ongoing trade war between the United States and China.