Semiconductors to hit the wall in 2019 as super cycle comes to an end

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Semiconductors to hit the wall in 2019 as super cycle comes to an end


Samsung Electronics’ world’s largest semiconductor plant in Pyeongtaek, Gyeonggi. [SAMSUNG ELECTRONICS]

The party’s over.

At least that’s the general consensus of numerous think tanks on the global semiconductor market.

First and foremost, the price of chips is looking weak.

The semiconductor super cycle - a major boom that has lasted several years - is coming to an end, and many project the price of chips will fall more than 10 percent.

World Semiconductor Trade Statistics (WSTS) sees the global semiconductor market shrinking, while Chinese competitors are expected to expand aggressively.

Last year, Samsung Electronics and SK Hynix enjoyed-record breaking performances. The combined DRAM market share for the two companies as of end of the third quarter was 73.5 percent.

Samsung Electronics currently holds the No. 1 spot in the global market with a share of 43.6 percent, while SK Hynix has 29.9 percent of the market. Micron Technology is in third with 21.6 percent.

Operating margins have been running at 50 percent for the two Korean companies.


But changes are anticipated this year.

According to DRAMeXchange, DRAM prices dropped more than 15 percent in October 2018. In November, prices fell another 1.64 percent.

It expects DRAM prices to fall more than 10 percent in the first quarter of 2019.

“It won’t be easy for Samsung Electronics and SK Hynix to enjoy operating margins of over 50 percent,” said Ahn Ki-hyun, Korea Semiconductor Industry Association executive director.

Demand is seen as weak.

The outlook for the three main markets for semiconductors - smartphones, computers and data centers - is negative.

It is estimated that last year 1.44 billion smartphones were shipped. If that number holds and is not revised, 2018 would be the first year since 2007 - the year of the iPhone’s introduction - in which the market has contracted.


SK Hynix’s M15 plant in Cheongju, North Chungcheong. [SK HYNIX]

These days, smartphones aren’t getting the same sort of attention they got in the past, with new models just not generating the hype of their predecessors.

This year, smartphone manufacturers are expected to release devices with 5G connectivity, but these new phones are not seen providing much of a boost to the sector.

In the storage business, plenty of data centers have been built over the past few years, and very little new capacity is needed.

Major IT companies, such as Google and Amazon, were the biggest clients for DRAM chips. They are now focused more on internal management issues than expanding data centers.

WSTS estimates that the global semiconductor market this year will likely grow 2.6 percent from $478 billion last year to $490.1 billion. That’s a sharp slowdown considering last year the market grew 15.9 percent. Gartner offers a similar projection, estimating that the market will grow 6.8 percent, a drop from last year’s 11.8 percent.

While the market is losing momentum, competition is expected to get more intense with China expanding its semiconductor industry.

China initiated an anti-trust investigation against Samsung Electronics, SK Hynix and Micron alleging price fixing. It could penalize the companies with fines of up to 8 trillion won ($7,1 billion).

With the support of the Chinese government, semiconductor companies could challenge Korean and U.S. chipmakers. Facing that possibility, Korean chipmakers have already gone into emergency mode, focusing heavily on R&D to develop technologies that could further widen the gap versus the competition.

After initiating mass production of the world’s first fifth-generation 3D NAND flash memory last year, Samsung Electronics will start producing the world’s first sixth-generation V-NAND member chips this year.

By the end of this year, the company will start the mass production of the world’s first DRAM chips using extreme ultraviolet (EUV) lithography.

SK Hynix will start mass producing 10-nano?range DRAM memories this year, while fifth-generation NAND flash will go into mass production this year at the company’s newly opened M15 plant in Cheongju, North Chungcheong.

Some experts say the country must prepare for the shrinking semiconductor market.

According to a recent report from the Korea International Trade Association (KITA), semiconductors last year accounted for 21 percent of Korea’s overall exports.

“While last year semiconductor exports grew 36 percent compared to the previous year, this year the exports will be up 5 percent,” said Moon Byung-ki, senior researcher at the Institute for International Trade, the research arm of KITA. “If the semiconductor business, which has been the major contributor to our nation’s exports, falls, the resulting economic impact is inevitable.”

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