A technician holds a semiconductor wafer at a producing plant.
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The current earnings calls of the world’s two largest reminiscence chipmakers signaled that weak demand could have lastly bottomed out.
Samsung’s working revenue within the third quarter jumped 262.6% as in comparison with the second quarter. This adopted a 85.15% drop in first quarter working revenue from the earlier quarter and a small 4.68% enchancment in second-quarter working revenue from the primary quarter.
SK Hynix in its quarterly report mentioned that its dynamic random-access reminiscence enterprise returned to revenue within the third quarter, after losses within the first two quarters of this yr.
“One of the big drivers of memory price recovering is industry-wide supply reduction and thus falling inventories,” James Lim, senior analysis analyst at Dalton Investments, informed CNBC.
“Inventories at personal computer and mobile customers seem to have come down a lot and very low memory prices tend to induce restocking or having more memory content per device,” mentioned Lim.
The South Korean corporations are the world’s two largest makers of DRAM chips, in keeping with information from market analysis agency TrendForce, with U.S.-based Micron trailing in third place. Such reminiscence chips are present in client gadgets equivalent to laptops and smartphones.
“We received numerous purchase inquiries amid widening awareness of the industry reaching a bottom, following the industry-wide production cuts,” Samsung mentioned in its earnings report final week. Chipmakers have been working down extra inventories by scaling again manufacturing.
During the pandemic, corporations stockpiled reminiscence chips to fulfill report electronics demand, however had been left with extra stock when that stress eased. Inflation has precipitated customers to rein in spending and reduce on purchases of client gadgets, driving down demand and costs for reminiscence chips.
Kazunori Ito, director of analysis at Morningstar, mentioned that “earnings calls confirmed that the memory industry has bottomed out as expected.”
“DRAM average selling prices, or ASPs, rose by midsingle digits for Samsung and 10% for SK Hynix, sequentially, and it was the first time in eight quarters that Samsung experienced a price increase,” Ito mentioned in a Nov. 1 report.
“We have made minor adjustments to our earnings forecasts for South Korean memory suppliers,” Ito mentioned. The monetary providers agency added that Samsung’s shares are “undervalued” whereas SK Hynix’s shares “have about 18%-20% upside to our fair value estimate.”
Other chipmakers have additionally projected robust outlooks.
The world’s largest contract chipmaker Taiwan Semiconductor Manufacturing Company exceeded analysts’ expectations and predicted the worst may quickly be over for the chip business. TSMC makes probably the most superior processors for corporations like Apple and Nvidia primarily based on Arm’s structure.
U.S.-based Qualcomm additionally gave a robust forecast for the present quarter, pointing to a chip restoration. Qualcomm makes the processors on the coronary heart of most high-end Android gadgets and lots of lower-end telephones as effectively.
“Although inventory levels peaked in mid-2023, they are still at the high levels, especially for NAND [flash memory],” Ito of Morningstar mentioned.
NAND is one other essential reminiscence chip that always works along with DRAM in PCs, servers and smartphones. It shops information however doesn’t require energy like DRAM.
“As a result, memory suppliers are expected to continue maintaining lower capacity utilization and to remain cautious about increasing production capacity next year, which should be favorable for memory prices due to limited supply,” Ito mentioned.
TrendForce mentioned it expects reminiscence suppliers to proceed “scaling back production of both DRAM and NAND Flash in 2024,” particularly within the “financially struggling NAND Flash sector.” The analysis agency additionally projected DRAM and NAND Flash demand to extend by 13% and 16% respectively in 2024.
AI growth to uplift earnings
In the third quarter, robust demand for superior, high-performance chips in generative AI has helped offset a slowdown for chips present in computer systems and smartphones, SK Hynix mentioned in its earnings report.
“On servers, AI demand has been another strong driver,” mentioned Lim of Dalton Investments.
ChatGPT and different massive language fashions want quite a lot of superior reminiscence chips, which allow such generative AI fashions to recollect particulars from previous conversations and person preferences as a way to generate humanlike responses.
“DRAM business … is expected to continue to improve along with the generative AI boom. The NAND flash business, which continues to suffer losses, is also showing signs of improvement,” SK Hynix mentioned in an announcement.
On the outlook for reminiscence demand, Samsung mentioned it expects fourth-quarter demand to select up with year-end promotions, new product launches by its main clients in addition to robust demand for generative AI.