Monday, December 9, 2019
Samsung Electronics and SK Hynix to Cut Semiconductor Investment Next Year
Chip Price Slump Continues
Samsung Electronics and SK Hynix to Cut Semiconductor Investment Next Year
  • By Kim Eun-jin
  • November 25, 2019, 11:00
Share articles

Samsung Electronics and SK Hynix are expected to prune investment next year in preparation for a slowdown in the semiconductor market.

Samsung Electronics and SK Hynix will prune investment next year in preparation for a slowdown in the semiconductor market. The two Korean chipmakers believe that an increase in chip demand due to the spread of 5G smartphones will not be enough to offset a decline in demand due to Intel's delay in launching a new central processing unit (CPU) for servers.

"We will be flexible in semiconductor supply and investment next year as uncertainties in memory demand continue due to the external environment," Samsung Electronics said in a third-quarter earnings conference call.

The semiconductor industry takes Samsung's “flexible investment” as a cut in investment. The fixed price of a DDR4 8 Gb DRAM stood at US$2.81 in October, a 4.42 percent drop from September. Increasing investment during a price decline only accelerates a price drop. In the same vein, Samsung revealed an operation plan for next year for the Xian 2 plant in China and Pyeongtaek 2 plant in Korea. But the plan did not specify production items and volume.

Samsung’s investment in semiconductor equipment amounted to US$66.8 billion from 2017 to 2019. The investment figure far exceeded Intel's US$43 billion which ranked second, said a report released by IC market, a global market researcher. Therefore, semiconductor industry experts say that Samsung believed that it was needed to adjust the speed of its investment in semiconductors.

SK Hynix also recently announced a reduction in investments in a conference call, saying, "Now, both DRAM and NAND flash production will decrease next year and investment will be significantly cut next year compared to this year." NAND flashes are less profitable than DRAMs and their prices fall to their break-even point (BEP) in the first half of this year. Thus, the memory semiconductor industry's earnings will not improve without a rebound in DRAM prices. Solid state drive (SSD) exports shrank 47 percent on year as they added up to US$3,137 million by the third quarter.

Both Samsung and Hynix hope to keep their DRAM inventories at a manageable level in the first half of next year, but this hope is also unlikely to lead to an increase in profits as they will prune inventories by adjusting output. Samsung Electronics is adjusting its shipments by converting its 10nm first-generation (1X) lines into 10nm second-generation ones and some of its DRAM facilities into CMOS image sensor production ones. Hynix is ​​also actively controlling its supply, saying, “We are converting DRAM production lines into those for mass production of CMOS image sensors.”