Tuesday, March 31, 2020
Samsung Electronics and SK Hynix to Reduce Investment in Semiconductors in 2020
Bracing for Chip Market Slump
Samsung Electronics and SK Hynix to Reduce Investment in Semiconductors in 2020
  • By Kim Eun-jin
  • November 11, 2019, 08:37
Share articles

Samsung Electronics’ Giheung Plant
Samsung Electronics’ foundry plant in Hwaseong, Gyeonggi Province

Samsung Electronics and SK Hynix are planning to become more conservative in investment to brace for a recession in the DRAM sector in the first half of 2020. This is based on a conclusion that the demand on the server side is unlikely to increase a lot with the release of Intel’s Ice Lake server CPU delayed although the demand is predicted to increase based on 5G popularization on the mobile side.

Samsung Electronics recently announced that its supply and investment would become more flexible in response to market conditions with memory demand-related uncertainties ongoing. According to industry sources, the flexibility it mentioned actually means a decrease in investment and this is because an increase in investment amid the ongoing decline in chip prices can result in a further drop in chip prices. Last month, the contract price of 8Gb DDR4 DRAM chips reached US$2.81 per unit, down 4.42 percent from the previous month.

Likewise, SK Hynix recently said that its DRAM production, NAND flash production and investment would decrease without exception next year. NAND flash memories are less profitable than DRAM chips, the price of NAND flash memories fell to close to the breakeven point in the first half of this year, and memory chip manufacturers are currently anticipating no profit improvement without a rebound in the price of DRAM chips.

Samsung Electronics also said that most of its capital expenditures for the fourth quarter of this year, 12.2 trillion won, would go to memory chip-related infrastructures, which implies no significant increase in semiconductor equipment investment. The infrastructures can be defined as not production facilities and equipment but power and water supply, clean rooms, roads around factories, and the like. Once such infrastructures are established, semiconductor manufacturing can be started within a year through equipment installation and tests, and then a flexible response is possible as Samsung Electronics explained.

Samsung Electronics is currently adjusting its outputs by replacing first-generation 10nm-class with second-generation 10nm-class production and using some of its DRAM production equipment for CMOS image sensor production. SK Hynix is increasing its CMOS image sensor production by reducing its DRAM production, too.

Chinese mobile and cloud computing companies boosted their DRAM purchase with regard to the U.S.-China trade war in the third quarter of this year, which means a decline in demand may be witnessed in the first half of 2020. It is in this context that Samsung Electronics said the DRAM shipments, which increased more than 30 percent in the third quarter of this year, would increase less than 10 percent in the following quarter.

The Intel Ice Lake processor is likely to be released in the second half of 2020 or later. SK Hynix said that its server DRAM business ratio would fall next year unlike its mobile DRAM business ratio related to 5G services. In most DRAM chip manufacturers, products for mobile use account for 35 percent to 40 percent of sales, those for use in servers account for 30 percent to 40 percent of sales, and the price of the latter is higher for the necessity of smooth around-the-clock operation. In other words, memory chip manufacturers’ performance can be improved when the server DRAM market recovers.