Winter comes early for Korean chipmakers amid DRAM crash and U.S. sanctions

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Winter comes early for Korean chipmakers amid DRAM crash and U.S. sanctions

Published: 09 Dec. 2024, 18:00

JIN EUN-SOO
[email protected]

Audio report: written by reporters, read by AI

A man rests at the booth for Chinese DRAM producer ChangXin Memory Technologies during the 21st China International Semiconductor Expo in Beijing, Wednesday, Nov. 20, 2024. [AP/YONHAP]

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Winter looms for Korean chipmakers as dynamic random access memory (DRAM) prices continue their free fall, compounded by new export restrictions from the United States.

Leadership turmoil in the country triggered by last week's emergency martial law declaration also hasn't helped reassure investors.

Nomura Securities downgraded the target share prices of both Samsung Electronics and SK hynix on Monday, citing weak price for commodity DRAM and NAND chips.

“The actual magnitude of commodity DRAM and NAND price weakness is likely to be bigger than we had expected for 2025,” Nomura Securities stated in a report on Samsung Electronics on Monday.

“We believe the impact of DRAM commodity price weakness is likely to be relatively greater for Samsung Electronics.”

Nomura revised its target price for Samsung Electronics from 88,000 won to 72,000 won and that of SK hynix from 280,000 won to 270,000 won.

Commodity DRAM prices, particularly those of the legacy Double Data Rate 4 (DDR4) chips that Chinese players dominate, have plummeted in recent months.

The average transaction price of DDR4 8GB 1Gx8 dropped by 35.7 percent from $2.10 in July to $1.35 in November, according to DRAMeXchange data, marking the lowest figure in more than a year for the price, which had averaged $1.30 in September 2023.

Chinese companies like ChangXin Memory Technologies and JHICC are disrupting the global legacy DRAM market by selling products for around $1 — half their market price, industry reports say.

Samsung Electronics also acknowledged during its third quarter earnings call that the influx of Chinese players into the legacy DRAM market had significantly impacted its earnings.

Chipmakers' response to that invasion is not helping, either.

Nomura's report noted that DRAM’s three dominant players — Samsung Electronics, SK hynix and Micron Technology — have shifted their production from DDR4 to DDR5, leading yet another oversupply issue to drag down the price of DDR5 as well.

“Price weakness is likely to spread from DDR4 to DDR5 or LPDDR5 from 1Q25F,” the report added.

Last year, the DRAM industry suffered an unprecedented supply glut following inaccurate demand forecasts, prompting major memory chipmakers to cut production.

While the production cuts took effect in the second half of 2023, the recovery faced renewed hurdles, including sluggish IT demand and Chinese competition, and began trending downward in August of this year.

Adding to the woes, the U.S. Department of Commerce's latest export restrictions on high bandwidth memory (HBM) — a premium DRAM crucial for AI training — are a new crisis for Korean chipmakers. HBM has been a key focus for Samsung and SK hynix, who control more than 90 percent of the high-end market together.

Domestic brokerages revised their target prices downward, citing a confluence of risks.

“The reemergence of the Trump administration has pushed [Samsung Electronics and SK hynix's] geoeconomic situation into the heart of a jungle,” said Lee Seung-woo, a researcher at Eugene Investment & Securities.

“On top of this, the semiconductor industry is slowing down, with added burdens such as export controls. Yet, in this critical moment, our nation finds itself in a surreal situation involving the declaration and lifting of martial law, as well as a leadership vacuum. Considering these domestic and international risks, major corporations face inevitable downward revisions in earnings forecasts and valuation adjustments.”

Eugene Investment & Securities dropped its target price for Samsung Electronics from 80,000 won to 77,000 won and that of SK hynix from 240,000 won to 220,000 won.

BY JIN EUN-SOO [[email protected]]