Memory-Chip Makers Face a Prolonged Price Slump

Memory chip prices have been falling steeply over the past year, and they are expected to continue falling in the first half of 2023. This will put additional pressure on an industry that has already cut investments and jobs.

According to industry analysts, average prices for the two main types of memory chips used in everyday electronics are projected to decline by double-digit percentages this quarter. This follows a drop of more than 20% in the last three months of 2022 from the previous quarter, according to analyst data.

Memory-chip makers are struggling as demand for gadgets remains low after a pandemic-driven boom. Many companies are saddled with large inventories, and have issued grim outlooks for the future.

Micron Technology Inc. is a leading provider of innovative memory and storage solutions. The company's products are used in a wide range of applications, including computing, networking, and mobile devices. Micron is committed to helping its customers meet the challenges of an ever-changing world.

SK Hynix Inc. and Western Digital Corp. are both leading semiconductor companies. SK Hynix is based in South Korea and Western Digital is based in the United States. Both companies are publicly traded on the stock market. SK Hynix is a major supplier of DRAM and NAND flash memory chips, while Western Digital is a leading manufacturer of hard disk drives.

Micron Technology said it would cut jobs and spending for the year to reduce costs after reporting a loss in its most recent quarter.

Memory chips are a key indicator for the semiconductor industry because they are highly sensitive to changes in supply and demand.

Samsung Electronics Co. is a leading electronics manufacturer that produces a wide range of products, from smartphones and tablets to TVs and home appliances. The company has a strong global presence, with operations in over 80 countries. Samsung is committed to innovation, with a focus on creating products that deliver an exceptional user experience.

The world's largest producer of memory chips, Samsung, will report earnings on Tuesday. The company has said that its operating profit for the October-to-December quarter is expected to drop by 69% from a year earlier, to 4.3 trillion won (roughly $3.5 billion).

SK Hynix is expected to report a fourth-quarter loss of around 812 billion won, or about $661 million, according to analyst projections averaged by FactSet. The company will release its earnings report on Wednesday.

Other companies that make semiconductors are also feeling the effects of the downturn. On Thursday, Intel Corp. reported a fourth-quarter loss and said that poor market conditions are expected to continue through the first half of the year.

Memory prices rose sharply during the early days of the Covid-19 pandemic, as demand for tech products soared. However, prices began to fall in late 2021, as the global economy slowed and interest rates rose. The decline accelerated in the second half of the year, as geopolitical tensions mounted due to the Russia-Ukraine war and China's Covid lockdowns.

According to Kim Soo-kyoum, associate vice president covering memory semiconductors at International Data, a tech-market-research firm, the memory-chip industry started 2023 with high inventories. With demand still sluggish, memory prices are expected to keep declining throughout this year, though the quarterly drops could narrow or flatten in the second half depending on how soon buyers come back, Mr. Kim said.

According to TrendForce, a Taiwan-based market researcher that tracks memory prices, average contract prices for the two main types of memory chips, DRAM and NAND flash, dropped by roughly 23% and 28%, respectively, during the October-to-December period from the prior quarter.

DRAM memory allows devices to multitask by providing quick access to data, while NAND flash memory provides storage capacity on devices.

According to TrendForce, prices for DRAM and NAND flash are expected to continue falling during the first half of this year. DRAM prices are projected to drop by 20% in the first quarter and 11% in the second quarter, while NAND flash prices are expected to drop by 10% and 3% during the same time frame.

According to TrendForce, inflation, high interest rates and weak economies are expected to continue to drive down corporate and consumer spending on products like smartphones, PCs and data servers that use a lot of memory chips.

Avril Wu, a TrendForce senior vice president, said that DRAM prices are expected to continue dropping through the second half of this year, and that production cuts on a massive scale would be needed to shore them up.

Ms. Wu said that prices for NAND flash could start to rebound in the second half of the year, as steeper price falls in recent months had prompted vendors to pursue more aggressive supply cutbacks for 2023.

Samsung, the largest producer of both DRAM and NAND chips, has not publicly committed to any actions that would reduce supply. In its last earnings call in October, Samsung's memory-business Executive Vice President Han Jin-man said the company was "not considering any artificial reduction in production for the sake of short-term, supply-demand rebalance."

A Samsung spokeswoman said that the company's position has not changed.

Goldman Sachs forecasted last month that Samsung's semiconductor unit's operating profit for the October-to-December quarter would be around 1.5 trillion won, or roughly $1.2 billion. This would be an 83% drop from a year earlier. They also projected that Samsung's memory business would record an operating loss starting from the first quarter of this year, due to steep losses in the NAND flash business.

David Tsui, senior credit analyst at S&P Global Ratings, said that global tech demand could recover later this year, aided by factors like China’s reopening after a period of strict Covid-19 restrictions. This could revive consumer spending on products like smartphones.

It is unclear how consumer behavior would change in the country and to what extent, he said.