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Chip inventory of Samsung, SK hits W50tr

Chip giants extend production cut, bracing for tough year ahead

By Jie Ye-eun

Published : Aug. 15, 2023 - 15:01

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Samsung Electronics’ chip manufacturing plant in Pyeongtaek, Gyeonggi Province (Bloomberg) Samsung Electronics’ chip manufacturing plant in Pyeongtaek, Gyeonggi Province (Bloomberg)

Samsung Electronics’ chip division and SK hynix have seen their inventories surge in the first half of this year, surpassing a combined 50 trillion won ($37.3 billion), according to the semi-annual reports released by the two firms on DART, the Financial Supervisory Service's electronic disclosure board Tuesday.

Samsung's device solutions division in charge of the tech giant's chip business saw total assets on its inventory jump 15.9 percent on-year to 33.7 trillion at the end of June, while SK’s inventory assets rose 4.8 percent on-year to 16.4 trillion won during the cited period.

The two chipmakers’ combined inventory came in at 50.1 trillion won, up by more than 5 trillion won in the first half alone. The share of chip inventories in the total assets of Samsung and SK also slightly increased by 0.4 percent and 0.9 percent, respectively, to 12 percent and 16 percent, the reports showed.

Compared to inventory assets at the end of 2021, both chipmakers’ inventories more than doubled from 18 months ago. Before the chip industry entered a downward phase, the inventory assets marked by Samsung and SK were 16.5 trillion won and 5.5 trillion won, respectively, at the end of 2021.

During the same period, they also saw a decrease in inventory turnover, with Samsung a rate of 3.3 times, down from 4.1 times and SK's rate falling from 2.4 times to 1.8 times. The inventory turnover is the rate that inventory stock is sold, used and replaced. The higher the turnover ratio, the faster inventory is converted into sales.

The two companies plan to continue cutting their chip production, centering around legacy processes, in the second half amid soaring inventory assets. In the second-quarter earnings conference held last month, Samsung announced that it would continue to cut production of NAND flash-centered memory chips in the July-December period. SK also unveiled its plan to cut additional NAND flash production by 5-10 percent over the cited period.

Cutting memory semiconductor production has been a global trend as they are struggling to make ends meet amid sluggish demand and price falls. Following the global smartphone market’s sharp decline in demand, a major demand for NAND is forecast to be contracted for a while, according to market watchers.

US chipmaker Micron Technology further reduced its NAND wafer output from 25 percent to 30 percent, while Japan’s Kioxia expanded its 30 percent production cut, which started in the fourth quarter of last year, to 50 percent this year.

But the problem is that even if the chip market revives in the second half as production cuts help restore prices, the global economic outlook remains uncertain.

The US is tilting toward a possible interest rate cut this year, but economic indicators still show signs of a slowdown. As the tension between the US and China to fight for global chip hegemony escalates, it is likely to impose a greater risk to Korean chipmakers.

Some market watchers even warned that a new “cold war” may hit the chip industry across the globe.

“The rebound in leading economic indicators at the end of last year and early this year suggests an improvement in semiconductor business conditions in the second half of this year, but the recent slowdowns in leading economic indicators are raising concerns about next year’s industry conditions,” said Song Myung-sub, a senior analyst at Hi Investment & Securities.