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Micron Technology to Slash Its Monthly Memory Output by 5%
A Boon to Samsung Electronics, SK Hynix
Micron Technology to Slash Its Monthly Memory Output by 5%
  • By Kim Eun-jin
  • March 22, 2019, 12:42
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Micron Technology has announced it will cut its monthly memory production by 5 percent.

Micron Technology will cut its monthly memory production by 5 percent, industry sources said on March 21. The U.S. semiconductor company said it had idled some factory lines to bring its chip output in line with lower demand. 

Micron's decision is expected to benefit Samsung Electronics and SK Hynix as it will ease the supply glut in the memory market to some degree.

Micron ranks third in the global DRAM market with a share of 23.5 percent, trailing Samsung with 41.3 percent and SK Hynix with 31.2 percent. In the NAND flash market, Micron is one of the Big Three with Samsung and Toshiba.

Micron announced that it would reduce its DRAM and NAND production by 5 percent immediately after its earnings announcement. This was different from the moves of Samsung Electronics and SK Hynix that announced that they would control production flexibly according to market conditions. The two Korean chipmakers meant that they would adjust their production volume from their new investment without changing their existing production volume.

Micron's declaration of a production cut is good news to the memory industry which has been suffering from an oversupply problem. "There was a pessimistic view that if SK Hynix and Micron join Samsung in slashing inventories by selling them at lower prices, the glut problem in the semiconductor industry would further deteriorate."

Semiconductor industry watchers do not expect that Samsung and SK Hynix will follow Micron's decision. "In the past, a decision to cut production was made only when semiconductor companies were all in the red," an executive said. "In addition, as Micron decided to cut production, it has become highly likely that the glut problem will be well addressed."

Paradoxically, Micron's decision garnered more attention due to the deterioration of the Korean chipmakers’ earnings. Samsung's operating profit consensus stood at a little more than eight trillion won in the first quarter of 2019. Some experts even estimated it at 6.7 trillion won. Assuming that the market consensus is met, it is the lowest in two and a half years since the third quarter of 2016 (5.2 trillion won).

SK Hynix, which is virtually a memory company, is facing a more serious situation because its dependency on DRAMs is 80 percent. The market consensus about its earnings is estimated at 2.8 trillion won but some experts say that its earnings will touch a little more than one trillion won. Considering the fact that SK Hynix posted 4.4 trillion won in sales in the fourth quarter of last year, the drop is too sharp.

"The five percent cut in Micron's production means a reduction in its input into wafers," an industry official said. "It will take about two months before Micron’s decision begins to take effect so the glut problem will begin to be resolved in May at the earliest."