End of a chip boom? Memory chip price drop spooks investors of Samsung, SK Hynix

SEOUL: After a blistering yearand-a-half long surge, a sudden drop in some memory prices, followed by Samsung Electronics Co’s disappointing profit estimate, is causing jitters among investors who had bet the chip boom would last at least another year.

Amid news that the market has started losing some steam – prices of high- end flash memory chips, which are widely used in smartphones, dropped nearly 5 per cent in the fourth quarter – some analysts now expect the industry’s growth rate will fall by more than half this year to 30 per cent.

That led shares in Samsung to dip 7.5 per cent last week, while its home rival SK Hynix fell 6.2 per cent.

But analysts say that there is unlikely to be a sudden crash, and that 2018 should be a relatively stable year for chipmakers.

The US$ 122 billion memory chip industry has enjoyed an unprecedented boom since mid2016, expanding nearly 70 per cent in 2017 alone thanks to robust growth of smartphones and cloud services that require more powerful chips that can store more data.

Supply also has become more disciplined following years of consolidation that reduced the number of manufacturers to a handful from around 20 in mid1990s.

“Memory chips will likely see a gradual price decline in 2018 if demand remains strong and appetite from servers holds,” said Lee Jae-yun, analyst at Yuanta Securities Korea.

But growth of 30 per cent is a strong gain in an industry known for volatility, and the market is still on course for its longest ever boom after shrinking 6 per cent in 2016.

Last year’s explosive growth gave chipmakers cash to reinvest and boost output, analysts said.

The supply of NAND flash memory chips, in particular, will grow 43 per cent this year, up from last year’s 34 per cent, causing prices to drop by about 10 per cent, brokerage Nomura estimates.

Nomura expects growth in output will be largely led by the likes of Western Digital, Toshiba Corp and Micron Technology Inc as they seek to catch up with topranked Samsung, which controls about 40 per cent of the flash memory chip market.

Smartphone vendors have been including more memory in their phones and charging more for them, allowing them to weather last year’s price surge, analysts say. — Reuters

After a blistering year-and-a-half long surge, a sudden drop in some memory prices, followed by Samsung Electronics Co’s disappointing profit estimate, is causing jitters among investors who had bet the chip boom would last at least another year. —...