The world’s two largest memory chipmakers signal demand weakness may have bottomed out
The world’s two largest memory chipmakers signal demand weakness may have bottomed out


A technician holds a semiconductor wafer at a producing plant.

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The current earnings calls of the world’s two largest memory chipmakers signaled that weak demand may have lastly bottomed out.

Samsung’s operating profit within the third quarter jumped 262.6% as in comparison with the second quarter. This adopted a 85.15% drop in first quarter operating profit from the earlier quarter and a small 4.68% enchancment in second-quarter operating profit from the primary quarter.

SK Hynix in its quarterly report mentioned that its dynamic random-access memory enterprise returned to revenue within the third quarter, after losses within the first two quarters of this 12 months.

“One of the massive drivers of memory worth recovering is industry-wide provide discount and thus falling inventories,” James Lim, senior analysis analyst at Dalton Investments, informed CNBC.

“Inventories at private pc and cell prospects appear to have come down so much and really low memory costs are inclined to induce restocking or having extra memory content material per system,” mentioned Lim.

The South Korean firms are the world’s two largest makers of DRAM chips, in keeping with data from market analysis agency TrendForce, with U.S.-based Micron trailing in third place. Such memory chips are present in client units equivalent to laptops and smartphones.

“We obtained quite a few buy inquiries amid widening consciousness of the {industry} reaching a backside, following the industry-wide manufacturing cuts,” Samsung mentioned in its earnings report final week. Chipmakers have been working down extra inventories by scaling again manufacturing.

During the pandemic, firms stockpiled memory chips to satisfy report electronics demand, however have been left with extra stock when that strain eased. Inflation has induced customers to rein in spending and reduce on purchases of client units, driving down demand and costs for memory chips.

Kazunori Ito, director of analysis at Morningstar, mentioned that “earnings calls confirmed that the memory {industry} has bottomed out as anticipated.”

“DRAM common promoting costs, or ASPs, rose by midsingle digits for Samsung and 10% for SK Hynix, sequentially, and it was the primary time in eight quarters that Samsung skilled a worth enhance,” Ito mentioned in a Nov. 1 report.

“We have made minor changes to our earnings forecasts for South Korean memory suppliers,” Ito mentioned. The monetary companies agency added that Samsung’s shares are “undervalued” whereas SK Hynix’s shares “have about 18%-20% upside to our honest worth estimate.”

Other chipmakers have additionally projected robust outlooks.

The world’s largest contract chipmaker Taiwan Semiconductor Manufacturing Company exceeded analysts’ expectations and predicted the worst might quickly be over for the chip {industry}. TSMC makes essentially the most superior processors for firms like Apple and Nvidia primarily based on Arm‘s structure.

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U.S.-based Qualcomm additionally gave a strong forecast for the present quarter, pointing to a chip restoration. Qualcomm makes the processors on the coronary heart of most high-end Android units and plenty of lower-end telephones as nicely.

“Although stock ranges peaked in mid-2023, they’re nonetheless on the excessive ranges, particularly for NAND [flash memory],” Ito of Morningstar mentioned.

NAND is one other vital memory chip that always works along with DRAM in PCs, servers and smartphones. It stores data however doesn’t require energy like DRAM.

“As a consequence, memory suppliers are anticipated to proceed sustaining decrease capability utilization and to stay cautious about rising manufacturing capability subsequent 12 months, which must be favorable for memory costs because of restricted provide,” Ito mentioned.

TrendForce said it expects memory suppliers to proceed “scaling again manufacturing of each DRAM and NAND Flash in 2024,” specifically within the “financially struggling NAND Flash sector.” The analysis agency additionally projected DRAM and NAND Flash demand to extend by 13% and 16% respectively in 2024.

AI growth to uplift earnings

In the third quarter, robust demand for superior, high-performance chips in generative AI has helped offset a slowdown for chips present in computer systems and smartphones, SK Hynix mentioned in its earnings report.

“On servers, AI demand has been one other robust driver,” mentioned Lim of Dalton Investments.

ChatGPT and different massive language fashions want a whole lot of superior memory chips, which allow such generative AI fashions to recollect particulars from previous conversations and person preferences to be able to generate humanlike responses.

“DRAM enterprise … is anticipated to proceed to enhance together with the generative AI growth. The NAND flash enterprise, which continues to endure losses, can also be exhibiting indicators of enchancment,” SK Hynix said in a statement.

On the outlook for memory demand, Samsung said it expects fourth-quarter demand to select up with year-end promotions, new product launches by its main prospects in addition to robust demand for generative AI.



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