According to the research data released by TrendForce yesterday, as some suppliers such as Micron and SK Hynix have started to reduce DRAM production, the average price of DRAM has dropped by nearly 20% compared with the first quarter, and the decline in the second quarter is expected to converge to 10~ 15%. However, since the recovery of demand in the second half of 2023 is still unclear, the downward cycle of DRAM average price has not yet come to an end. In the current situation where the inventory level of the original factory is still high, unless there is a larger-scale production reduction, the follow-up contract price may be reversed. change.
TrendForce also shared their analysis report on NAND Flash. As they said, most suppliers have begun to reduce production. Therefore, the vicious circle of suppliers undermining each other has also been controlled to a certain extent. It is currently estimated that the overall NAND Flash ASP in the first quarter of 2023 will have a quarter-on-quarter decline of 10-15%, which is smaller than the quarter-on-quarter decline in the fourth quarter of 2022.
From the perspective of market performance, the performance of the three storage giants is not ideal.
Micron reports biggest loss in history
Micron Technology reported its biggest quarterly loss on record as it took an inventory writedown of more than $1.4 billion on Tuesday. But shares rose as executives said the memory market may have bottomed out. ”We now believe that customer inventories have been reduced in several end markets, and we expect the supply-demand balance to gradually improve over the coming months,” Micron Chief Executive Officer Sanjay Mehrotra said in prepared remarks. “Excluding the impact of inventory write-downs, we believe our balance sheet days of inventory outstanding (DIO) peaked in the fiscal second quarter, and our quarterly performance is close to transitioning to sequential revenue growth.”
Micron posted a loss of $2.31 billion, or $2.12 a share, on sales of $3.69 billion in the second quarter, down from $7.79 billion a year ago, according to earnings data. In the same quarter in 2003, the company’s largest quarterly loss on a GAAP basis was $1.94 billion, according to FactSet records. The Idaho-based memory chip specialist reported a loss of $1.91 per share, compared with an adjusted profit of $2.14 per share reported a year ago, after accounting for stock-based compensation and restructuring costs from recent layoffs.
Analysts on average expected an adjusted loss of 67 cents a share on sales of $3.71 billion, according to FactSet. Micron shares rose more than 1 percent in after-hours trading immediately after the results were announced, before closing down 0.9 percent at $59.28.
Micron suffered losses due to a decline in the memory chip market and demand for many of the items its core products touch, such as personal computers, smartphones and cloud computing servers. After demand for memory surged as consumers and businesses frantically hoarded electronics in the early days of the COVID-19 pandemic, a slowdown in purchases led to a buildup of inventories and a rapid drop in memory chip prices.
“The semiconductor memory and storage industry is facing its worst recession in the past 13 years and the pricing environment has been exceptionally weak, which is having a material impact on our financial results,” Mehrotra said on a conference call Tuesday afternoon.
Other comments on the call focused on the end of that dynamic, with Mehrotra’s most specific call focusing on the key data center market, where cloud computing stalwarts have put their buying on hold. Inn Tuesday prepared remarks, though Mehrotra said the rise of generative AI programs like ChatGPT will turn the market around. ”In data center, we believe our revenue bottomed out in the fiscal second quarter, and we expect revenue to grow in the fiscal third quarter. Data center customer inventory should reach relatively healthy levels by the end of 2023,” he explained, focusing on Servers for artificial intelligence programs require several times as many memory chips as standard servers.
Analysts were widely predicting an inventory write-down after rivals Samsung Electronics Co. and SK Hynix made similar moves in their recent earnings presentations, a move the company’s chief financial officer hinted at earlier this month. The only disagreement centers on size: Citi research analyst Christopher Danely thinks Micron will write down roughly $1 billion or more to “reduce days of inventory and make it easier for Micron to sell inventory,” while TD Cowen analyst Krish Sankar sees a writedown of roughly $1 billion or more. A writedown of US$550 million to US$850 million is expected.
Difficulties for Samsung and SK Hynix
For Samsung and SK Hynix, like Micron, they first have to face the difficulty of revenue.
According to earlier reports from Korean media, the chip business of Korean semiconductor giants Samsung and SK Hynix is expected to face a loss of several trillion won in the first quarter of this year, reflecting the accumulation of inventory and consumer spending. Slowing down the impact will become a major business challenge for enterprises.
The “Korea Herald” recently reported that according to documents submitted by Samsung to the Korean Financial Supervisory Service, as of the fourth quarter of 2022, the company’s overall inventory assets reached 52.2 trillion won (approximately NT$1.22 trillion), setting a record high. Much higher than the 41.4 trillion won (approximately NT$965.1 billion) in the same period in 2021.
SK Hynix is also facing the same dilemma. The overall company inventory assets soared by 75% in the fourth quarter of 2022 to 15.7 trillion won (approximately NT$365.9 billion). The outside world believes that SK hynix’s business is more focused on dynamic random access memory (DRAM) and NAND flash memory (NAND Flash), which account for more than 90% of the total revenue, and is more vulnerable to the impact of the market downturn. The report quoted the opinions of industry insiders, pointing out that the prices of PC DRAM and NAND flash memory chips have fallen close to the cost price; Korean brokerage KB Securities predicted that there will be a 19% and 18% decline in the first quarter of this year, respectively.
As the dividend of the epidemic is no longer there, and major economies in Europe and the United States are actively raising interest rates, not only the demand for TVs and other home appliances has declined, but also the purchasing power of the market has been greatly reduced, resulting in excess chip inventory and price drops. According to data from the market research agency FnGuide, the operating loss of Samsung’s semiconductor division in Q1 will fall between 1.91 trillion and 4.47 trillion won (approximately NT$44.521 billion to 104.193 billion); SK Hynix’s loss is predicted to be 3.11 trillion won (NT$ 72.458 billion yuan) up and down.
In addition, the U.S. chip bill has also brought unprecedented pressure to the two Korean semiconductor giants.
According to the rules released by the U.S. Department of Commerce, in the $52.7 billion chip subsidy process, the United States has added “national security guardrails” (national security guardrails), restricting beneficiary chip factories in “foreign countries of concern” (foreign countries of concern) ) production increase and scientific research cooperation.
According to the “National Security Guardrail Clause”, following three principles, beneficiary chip factories are not allowed to use financial support from other countries. Within 10 years of receiving subsidies from the US government, beneficiary chip factories will be strictly restricted from investing in “concerned countries”. Also included are technologies, products, and joint research or technology licensing work by foreign entities.
According to these detailed rules of the United States, the scope of foreign entities of concern in the “National Security Guardrail Clause” has been expanded, including the entity list of the US Department of Commerce. At the same time, this clause has clear restrictions on the expansion and consumption of more-advanced semiconductors and legacy semiconductors in “countries of concern”. For example, a “major transaction” for advanced process chips is defined as an investment of more than $100,000; “substantial expansion” is defined as an increase in production capacity of more than 5%. The terms stipulate that if the above-mentioned definition is broken when expanding or building new advanced process chips, the US Department of Commerce has the right to withdraw subsidies to chip factories. For mature process chips, that is, logic chips of 28 nanometers or lower as defined in the bill, the provisions prohibit chip factories from increasing their production capacity in “countries of concern” by more than 10%. The “Country of Concern” market is consumed and the US Department of Commerce must be notified.
After the detailed rules were announced, the Korean media immediately expressed a sigh of relief, and Samsung and SK Hynix also expressed that they would examine the impact in detail. On Tuesday, South Korean chipmakers expressed deep concern over detailed guidelines from the U.S. CHIPS and Science Act, saying they were forced to pay more for U.S. chip subsidies and incentives. Excessive requirements to disclose sensitive information to the U.S. government that are considered commercial secrets could significantly reduce the attractiveness of receiving state funding to build new facilities in the country, they said.
Semiconductor companies hoping to receive funding from the CHIPS Act must provide detailed revenue and profit forecasts for their new chip manufacturing plants, which the administration plans to use to evaluate applications, according to new guidelines released by the Commerce Department on Monday. The department offers an Excel-based tool that applicants can use to submit a pre-application to begin a conversation with U.S. officials before completing a full application. The data that needs to be submitted includes the number of wafers, operating rate, output, yield, expected chip sales price and expected annual price changes.
Companies will also be required to disclose data on semiconductor materials such as silicon, nitrogen, oxygen, sulfur, and related consumables and labor costs. However, this information is classified as confidential and will not be disclosed in its financial reports. To that end, South Korea, home to two memory chip makers Samsung Electronics Co. and SK Hynix Corp., has become increasingly frustrated with the detailed guidelines of the US CHIPS Act. “Some demands are difficult to accept. American companies like Intel will also find it difficult to accept,” said an executive at a South Korean chipmaker.
“Since we’re being asked to expose ourselves to high business risk, we’re not sure what we’ll get in return.” South Korean government officials have said the request for a $53 billion U.S. chip subsidy program is “unconventional” and comes with “the same Subsidies offered by foreign investment are completely different and unconventional conditions”. ”Investing in the U.S. is becoming less and less attractive given the high investment costs,” Seoul’s Minister of Industry and Trade Lee Chang-yang said earlier this month.
For the storage giants, there are also many uncertainties in their future operations.
Post time: Apr-04-2023