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Memory chip market recovery likely to be delayed to next year

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The world’s second-largest memory provider SK hynix last reported an operating deficit in the third quarter of 2012. SK HYNIX

Memory chip market recovery likely to be delayed to next year

Forecasts for the global memory chip market are growing more pessimistic, as a rebound in prices is not likely to happen until next year amid tension between the US and China’s Huawei Technologies, according to financial reports and industry insiders.

The negative outlook is dampening expectations about South Korean chipmakers’ performance for the next six months.

Global financial institutions, including UBS Securities, Goldman Sachs and Morgan Stanley, recently released reports suggesting that SK hynix might end up in the red in the fourth quarter.

A report by Goldman Sachs noted that slowing demand for memory chips from China, due to the US sanctions on Huawei, could lead to DRAM inventory pileups and subsequent price falls.

Huawei’s smartphone division is a major customer of SK hynix, and SK’s newest DRAM plant in China is reportedly getting ready for full operations at a slower pace than planned, due to decreased orders in China.

“SK hynix could report quarterly deficits starting in the fourth quarter of this year and throughout the first half of next year,” said a report by Meritz Financial Group.

The world’s second-largest memory provider, SK hynix last reported an operating deficit in the third quarter of 2012. Since the fourth quarter of that year, the chipmaker has posted surpluses owing to a memory chip boom.

The memory chip market was initially expected to hit rock bottom in the fourth quarter of this year, but the US investor has postponed the timeline for its prediction to the second quarter of next year.

The NAND flash market will bottom out in the fourth quarter, about three months later than previously predicted, the report said.

According to chip price tracker DRAMeXchange, DRAM prices will decline 10 to 15 per cent during the July to September period of this year, as compared with an initial forecast of around 10 per cent.

The market researcher says DRAM prices will continue diving more than 10 per cent in the fourth quarter.

It was initially projected that demand for memory chips would recover in the third quarter of this year. But macro geopolitical issues, like the Trump administration’s blacklisting of Huawei products, have made a strong recovery less likely, financial analysts say.

“Inventories at data centre companies are expected to return to the normal levels in the fourth quarter of this year, which could signal a turnaround for the memory market,” said Choi Do-yeon, an analyst at Shinhan Investment Corp.

Meanwhile, Huawei’s impact on Samsung Electronics’ semiconductor division is expected to be offset by unexpected gains for its set division. Forecasts about its annual performance are divided.

“Samsung’s smartphone and network divisions will gain greater benefits the longer the US sanctions remain in place,” said Samsung Securities analyst Hwang Min-seong. “However, the semiconductor division will face falling demand and inventory pileups.

“Overall, considering the Huawei gains and favourable currency exchange rates, Samsung could expect a modest 1.4 per cent increase in its annual operating profit,” he said.

However, quarterly earnings forecasts for Samsung’s device solutions division are not promising.

The semiconductor unit is projected to report an operating profit of around 2.8 trillion won ($2.4 billion) for the second quarter and 3.9 trillion won for the third quarter, according to a report from IBK Investment & Securities. THE KOREA HERALD

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