Trade war, Huawei’s woes hurting Korea

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Trade war, Huawei’s woes hurting Korea

The trade war between the United States and China is having an even bigger impact on the Korean economic growth as DRAM chip prices take a hit.

According to a DRAMeXchange report released on Thursday, the trade war’s impact on Chinese manufacturer Huawei will be particularly profound.Huawei’s shipments of smartphones and server products will likely face “heavy obstacles” in the next two to three quarters, it said, and as a result, demand for DRAM will be affected.

“A heated U.S.-China trade war may send demand in the second half of this year into quick-freeze, with the increasingly looming uncertainty compelling data centers to make reductions to capex [capital expenditures],” DRAMeXchange report stated.

In the third quarter of this year, the average DRAM selling price is expected to fall between 10 to 15 percent, sharper than previous expected, which was a maximum of 10 percent.

Previously, DRAM prices were expected to fall between 2 to 5 percent in the fourth quarter. The newly adjusted projection sees prices dropping as much as 10 percent.

“DRAM prices have a chance to see a rebound in 2020 due to prices hitting bottom, limited supply bit growth and other factors,” the report said.

Korea’s overall exports have been falling for six consecutive months largely due to weakness in semiconductors as well as the falling exports to China.

Semiconductors account for nearly 20 percent of all Korean exports.

Korea is the world’s largest DRAM producer. According to IHS Markit, Samsung Electronics holds the largest market share with 39.9 percent as of the first quarter of this year while SK Hynix follows behind with 31.9 percent. U.S. Micron has 24.5 percent.

Last month, semiconductor exports declined 30 percent on a yearly basis, sharper than their 13.7 percent drop in April. This is a stark contrast to the average 5.5 percent increase in May’s export compared to the previous month between 2000 and 2018.

“Usually semiconductor exports shrink in April after they are shipped in large volumes in March [to raise first-quarter performances] and then recover in May,” said Lee Seung-woo, a Eugene Investment & Securities analyst. “In the last 19 years, there were only three times semiconductor exports in May fell compared to April’s.”

Lee added that even when they fell, the average decline was 1.7 percent.

“A [sharp] decline in semiconductor exports in May this year is very unusual,” Lee said.

“While the basic belief that the semiconductor industry will see improvement in 2020 remains unchanged, the [previous] outlook for the semiconductor industry in the second half as well as on IT companies in general will likely be lowered,” Lee added.

Plummeting chip prices will affect overall economic growth.

When the Bank of Korea (BOK) has lowered its growth outlook for this year from 2.6 percent to 2.5 percent in April, it predicted that facilities investment will improve with the global semiconductor market turning around in the second half.

That seems overly optimistic now.

A recent Bank of Korea report showed that the Korean economy fell 0.4 percent in the first quarter compared to the previous quarter, slightly worse than the 0.3 percent contraction announced in a preliminary report.

It was the lowest first-quarter growth in 10 years.

The BOK also released a report that showed that Korea’s current account in April posted its first deficit in seven years.

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