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Japan-South Korea trade disputes have caused the flash memory and memory two major memory chip markets to decline

Release on : Aug 1, 2019

The trade dispute between Japan and South Korea has made the two memory chips market of flash memory and memory worse. Even without Japan’s sanctions, the decline in flash memory and memory prices this year has brought revenue and profit to Samsung and SK Hynix. Great impact, Q1 quarterly profit fell more than 50%. Samsung is the world's largest memory and flash memory company. Q1 quarter revenue was 52.39 trillion won, down 13.5% year-on-year, down 11.6% from the previous month; operating profit was 6.23 trillion won, down 60.2% year-on-year, down 42.3% from the previous month; net profit was 5.04 trillion won , a year-on-year decline of 56.9%, down 40.4% from the previous month. SK hynix is ​​the world's second largest memory chip and the fifth largest flash memory chip company. Q1 quarter revenue was 6.77 trillion won, down 32% from the previous month, down 22% year-on-year, and net profit was 1.1 trillion won, down 68% from the previous month. The net profit for the Q2 quarter was 537 billion won, down 51% from the previous month and down 88% from the same period last year.


The two companies account for 75% of the world's memory and about 50% of the flash memory. They are greatly affected by the price cuts of the chips. At the same time, the two Korean giants' profits have also dragged down the Korean economy. This is no exaggeration. The export data released by the customs department in June decreased by 13.5% year-on-year to US$44.18 billion, the seventh consecutive month of decline, and the largest decline in three years and five months. Among them, semiconductor exports plummeted 25.5%, which is the key to the decline. .


Samsung said its second-quarter net profit fell 53.1% year-on-year due to weak memory chip prices and a decline in mobile business. The world's largest chip and smartphone maker achieved net profit of 5.18 trillion won ($4.4 billion) from April to June, compared with 11 trillion won ($9.3 billion) in the same period last year.


According to a survey conducted by Yonhap Infomax, a financial institution of Yonhap News, on 23 Korean brokers, analysts expect Samsung’s second-quarter operating profit to be 6.07 trillion won ($5.1 billion), with an average revenue forecast of 54 trillion won. $45.7 billion).


Samsung said in a press release: "Despite the limited recovery in demand, the weak memory and price declines in the memory chip market continue due to the impact of major data center customer inventory adjustments in previous quarters."


These figures are slightly better than what Samsung expected earlier this month. Samsung said at the time that its semiconductor business consolidated revenue for the quarter was 16.09 trillion won (about 13.6 billion US dollars), operating profit was 3.4 trillion won (about 2.9 billion US dollars). The company said that despite the weak market environment, demand for its memory sector is still growing.


Samsung expects that in the second half of this year, “demand is expected to grow, although the company believes that the entire industry will fluctuate due to external uncertainty.” Samsung’s main profitable business is memory components for mobile phones and enterprise servers.


The company expects DRAM demand in servers and computers to pick up in the third quarter as data centers adjust inventory levels and resume purchases during peak seasons. For NAND, which is primarily used in mobile devices, Samsung expects the market to stabilize from the third quarter as demand for high-density products continues to rise.


This is the second consecutive quarter of operating profit of the Korean technology giant, which has fallen by more than half. In the first three months of March, Samsung’s profit fell by about 60% year-on-year to 6.2 trillion won ($5.3 billion).


The global semiconductor industry is experiencing an inventory adjustment period, which keeps demand low and leads to oversupply, which squeezes prices. Analysts say they expect the recovery to begin in 2020.


Last week, Samsung's competitor SK Hynix announced the lowest quarterly earnings in three years, lower than industry expectations.


There is another worrying thing for Korean chip makers: the ongoing dispute between Japan and South Korea has led the Japanese government to limit the export of key high-tech materials, and companies such as Samsung and SK Hynix use these materials to make chips and smartphone screens. .


Although Japan’s short-term impact is expected to be limited due to high inventory levels, analysts say companies may face longer-term difficulties in finding alternatives. While this may help push up the price of the chip, it could also make smartphones and other electronic products more expensive.