For memory chips, both supply and demand are a problem

Samsung Electronics' NAND flash memory manufacturing complex in Xi'an, Shaanxi Province, central China [SAMSUNG ELECTRONICS]

For the memory chip market, supply is a problem. So too is demand.

While China's Covid-19 lockdown is further disrupting the supply chain for semiconductors, the upward trend in memory prices has come to a halt due to plunging demand.

China, which has the world's biggest semiconductor market, imposed stringent Covid-19 lockdown measures in several cities in the wake of one of the worst pandemic outbreaks in the country. Shanghai, Kunshan, and Shenzhen were first to fully or partially shut down, and Suzhou, Xi'an and Zhengzhou have followed.

Samsung Electronics has a NAND flash plant in the city of Xi'an in Shaanxi Province, central China. Foxconn, an Apple smartphone assembler, runs an iPhone factory in Zhengzhou, Henan Province in central China.

"Major manufacturing bases haven't been shut down yet, so the impact wasn't that big, but we had a disruption in laptop production recently due to resource supply issue," said a spokesperson for Samsung Electronics.

The electronics manufacturer reportedly notified its clients that the production and delivery of laptops would be delayed.

The spot price of 8-gigabyte Double Data Rate 4 (DDR4) chips for PCs declined for the seventh consecutive week last week, down 1.44 percent drop on the week, according to market tracker DRAMeXchange. The 8-gigabyte DDR4 traded at $3.611 on Monday.

Chip suppliers are going to take a hit from the price drop, as the spot price fluctuations will impact their profitability in the upcoming months.

NAND flash spot market, which had been strong even when dynamic random access memory (DRAM) prices slumped, has started to face challenges as well.

The DRAMeXchange Index, or DXI, which shows DRAM output changes, decreased for three consecutive weeks, down 1.5 percent in the latest week.

The memory chip market is trending downward because the Covid-19 pandemic began to wane globally, resulting in the demand drop for electronic devices, according to analysts.

"Despite the supplier price adjustments, buyers remained passive in purchasing in anticipation of additional price cuts," said Meritz Securities analyst Kim Sun-woo.

Experts forecast that the Chinese lockdown curbs would take a toll on logistics as well as production and sales of semiconductors and ICT products.

"Manufacturers are getting jittery over the longer-than-expected lockdown in the Chinese cities, and shipment volumes in every chip-related sector, such as automobile, PC, smartphone and server, has been affected," said Eugene Investment & Securities analyst Lee Seung-woo.

Lee added that "though the buyers are making purchases to secure stocks over chip supply concerns, the demand for memory chips is showing signs of flagging."

Taiwan-based Quanta Computer, key supplier for Apple's MacBook laptop, suspended operation at its Chinese factories due to the lockdown in Shanghai. Pegatron, a Taiwan Apple supplier, also halted its production lines in Shanghai and neighboring Kunshan.

As the outlook turns grim, tech stocks slumped in result.

The Philadelphia Semiconductor Sector Index, which tracks the global semiconductor sector, closed at 3,085.19 points on Monday, down 10.1 percent on month from 3,432.30 points on March 18.

From March 18 to April 18, U.S. chipmaker Nvidia dropped 17.7 percent to $217.83 and AMD dipped 17.2 percent to $93.89.

On Tuesday, Samsung Electronics closed at 67,300 won ($54.40), down 4.8 percent on month. Chipmaker SK hynix declined 9.2 percent to 112,500 won during the same period.

BY KIM TAE-YUN, CHOI EUN-KYUNG, SHIN HA-NEE [shin.hanee@joongang.co.kr]