The deterioration of the semiconductor memory market is intensifying. Each memory maker such as SK Hynix in South Korea fell into losses from October to December 2022. Downward pressure on prices is continuing as semiconductor inventories increase due to slowing demand from smartphones and other effects. Previously, it was believed that the semiconductor market would maintain stable growth against the backdrop of continued increase in data volume, but the cyclical deterioration in the market has not yet been overcome.

The business environment for memory is deteriorating rapidly. South Korea's Samsung Electronics' semiconductor business saw a 97% year-on-year decline in operating profit from October to December 2022 for the same period. SK Hynix and Armor Man Holdings, among others, also posted operating losses.

"The largest decline since 2008."

The reason is the decline in memory prices. The price of DRAM for temporary storage fell by more than 30% in October-December 2022 compared to July-September 2022, and the price of NAND-type memory cards for long-term storage fell by nearly 30%, Samsung said, for example. ".

According to Taiwan research firm Tiburon Consulting (Trend Force), memory prices have turned to a downward trend since July to September 2022, with October to December 2022 plunging 20-25% compared to July to September. It is expected that January to March 2023 also saw a decline of more than 1 percent.

World Semiconductor Trade Statistics (WSTS) released its market forecast (in terms of value) in November, showing that the memory market will decrease by 12.6% in 2022 and 17% in 2023. The logic semiconductor market will decrease by 2% year-over-year in 2023, and the semiconductor market in 2023 will be lower than the previous year for the first time since 2019 (12% decrease).

The boom-and-bust cycle that the semiconductor industry has maintained for decades has shortened, and steady growth will continue - optimism that emerged in the second half of the 2010s. It was thought that as the amount of data needed for smartphones and data centers increased, the demand for the semiconductors needed for processing and storage would increase in tandem.

The amount of data circulating globally itself is continuing to increase. U.S. research firm IDC projects in 2022 that global data generation will reach 221 ZB (1 ze is equivalent to 1 billion times 1 trillion) by 2026, increasing to more than twice the amount in 2022. it will reach 175 ZB in 2025, increasing at a rate that exceeds the 2018 forecast. The market for servers used in data centers, etc. will grow 3% year-on-year in 2023, which is expected to sustain growth, although temporarily slowing down compared to 2-digit growth.

This will be even more pronounced if the standard is changed to "capacity" for storage, for example. According to data from Tibco, memory card shipments by storage capacity (bit) will grow by 29.8% in 2022 and by 20.6% in 2023. The past five years to maintain an annual growth rate of about 30%.

The price per unit of performance of the semiconductor itself has been decreasing with the advancement of technology. If the performance increases with the microfabrication of the circuit, even if the same semiconductor, the operation is faster and the amount of information that can be stored is increasing. In addition to competition from companies, the level of demand from the demand side is also increasing, and the price of semiconductors will not rise by the same amount as the increase in performance.

In the case of memory, for example, the unit price per unit of storage capacity will fall. According to Japanese research firm Techno Systems Research, the cost of 1GB of solid-state drives (SSDs) using memory cards drops to $0.107 as of 2022, less than half of what it was in 2018.

Difficult to reduce supply

If demand increases faster than prices fall, it will push up the semiconductor market. However, the balance between supply and demand has clearly disintegrated since the second half of 2022. In particular, shipments of smartphones, which account for about 40% of total memory demand, have decelerated significantly, with IDC data showing that global smartphone shipments, which reached 1.359.8 million units in 2021, will decrease by 11% by 2022 due to the deterioration of the Chinese economy, among other reasons.

In the face of a rapid slowdown in final demand, from the manufacturing of semiconductors that take several months to see, production stepping on the brakes has not kept pace. In the semiconductor industry, the memory field has not been monopolized, and it is difficult to reduce the supply side. During this period, the inventory of trading companies and customers has increased, and the semiconductor products that are temporarily oversupplied are under strong downward pressure on prices.

Various memory makers forecast that "inventory levels crossed the peak from January to March, and the second half of the year will see an improvement in supply and demand" (SK Hynix). If the adjustment of customers and inventories come to an end and shipments increase, the market size will also turn to a recovery trend.

The stock market is also starting to bet on the improvement of the memory depression. The stock prices of various semiconductor manufacturers bottomed out at the end of 2022 and entered a recovery trend. Samsung's stock price on March 8 was up 9% from the end of 2022, and SK Hynix was up 16%. However, they are still at the level of 2 to 3 percent down from the end of 2021, and are currently at the stage of watching when the semiconductor market will regain balance.

The revival of final demand such as smartphones is swayed by the macro economy. The head of the semiconductor-related companies said that the decline in the semiconductor market "has reached a scale never experienced before" and the uncertainty of the future is still prominent. Against the backdrop of increased investment required for technology development and start-up of mass production processes, the management choices of semiconductor manufacturers will become increasingly difficult if the deterioration in performance continues.