For Memory-Chip Makers, the Worst Appears to Be Over
January 08 2020 - 08:19AM
Dow Jones News
By Eun-Young Jeong
SEOUL -- After an excruciating year, makers of memory chips have
a reason to breathe a sigh of relief: The industry's slide has
ended.
The latest sign of a rebound was Samsung Electronics Co., the
world's largest memory-chip maker, issuing guidance that topped
analysts' estimates. That follows comments from rival producer
Micron Technology Co. in December that the industry has finally
confronted its worst days.
A big accelerant is the global rollout of the next-generation 5G
mobile networks, which should energize previously falling
smartphone sales and juice company investments into artificial
intelligence, computing and data storage -- areas that all require
heavy memory demands.
Prices for memory chips had nosedived for much of the past 15
months. Following a historic run of profits, the industry
overproduced as the global economy hit a skid and left a glut of
unsold inventory.
The final three months of 2019, however, showed a return to
better days. Contract prices for NAND, a major type of memory chip,
rose for the first time in more than a year and half, according to
TrendForce, a market-research firm. The other major memory chip,
DRAM, is forecast to show contract-price increases for the first
time in over a year during the first three months of 2020,
TrendForce
"The surpluses in the [memory chip] stockpile are smaller than
before. We're not seeing the excesses that were available three
quarters ago," said Tobey Gonnerman, an executive at electronic
components distributor Fusion Worldwide. He added that memory chip
transactions also had ticked up in the past two months.
Despite sagging chip maker profits last year, investors had bet
on a turnaround in 2020, as Samsung's shares last year rose 44%.
Micron increased 64%, while SK Hynix Inc. jumped 61%. Those three
companies represent the lion's share of the world's memory
production.
Companies and industry observers had anticipated throughout last
year that market conditions would eventually improve, but nudged
the timeline back as the U.S.-China trade fight remained
unresolved. Chip buyers, worried about potential tariffs and soft
smartphone sales, held off on purchases.
What has become clearer, according to industry officials and
analysts, is an increase in demand that is feeding optimism for a
return to growth.
Smartphone sales are also likely to boost memory-chip demand. In
2020, several major markets are set to expand their 5G networks.
The expansion is expected to boost smartphone sales, which have
declined for two consecutive years as consumers hold on to their
devices longer without upgrading them, according to Tarun Pathak,
an associate director at Counterpoint Research.
But Mr. Pathak forecasts a 4% growth in smartphone shipments
this year. "Memory capacity in smartphones is also increasing every
year," he said.
Stabler relations between Washington and Beijing also should
improve business confidence, experts say. A survey released last
month showed U.S. business activity improved to a five-month high
in December. In China, Beijing's efforts to spur domestic growth
has given a boost to its foreign trade, which rose 4% in December
from November's 1.5% drop.
Meanwhile, big internet companies such as Facebook Inc. and
Amazon.com Inc. are jumping back to revamp memory-chip inventory
after months of slimming down on their stockpiles, said Mark
Newman, an analyst at Bernstein Research, who follows the
semiconductor market.
The industry is also on a stronger footing after pulling back on
investments to expand production, reducing the hazards that come
with overcapacity. Memory chip makers are forecast to have reduced
2019 capital expenditures to around $44 billion, a reduction of $6
billion from the prior year, Bernstein said. That is the first
spending drop after almost six straight years of increases.
"We have hit the bottom," Mr. Newman said.
Memory-chip demand has been prone to wild swings over the
decades. Previous downturns drove many chip makers to bankruptcy
and led to consolidation in the industry.
The latest memory-chip cycle was more protracted than usual and
became coined as the "supercycle" for its extended rally period
that ended in the second-half of 2018. But some industry analysts
have said the companies were quicker this time in slashing
production, potentially shortening the downtimes versus the
past.
--Liyan Qi contributed to this article.
Write to Eun-Young Jeong at Eun-Young.Jeong@wsj.com
(END) Dow Jones Newswires
January 08, 2020 08:04 ET (13:04 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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