There are more signs that the memory price cycle is peaking, meaning Samsung’s earnings may be peaking for the cycle as well.
Worryingly, the growing demand for electronic devices such as personal computers and smartphones may be exhausted. Spot prices for memory chip DRAM for processing have dropped since April. While large suppliers such as Samsung do not base their sales on spot prices, weak prices can ultimately hurt contract prices as well. Market researcher Trendforce expects DRAM contract prices to drop 3% to 8% this quarter.
Demand for personal computers, which received an unusual hit from the pandemic, could return to normal levels very soon. Goldman Sachs expects PC shipments to decline 12% year over year in 2022. Slowing economic growth in China’s largest smartphone market could also reduce demand for memory-chips for mobile devices. And global trade growth as a whole is starting to slow down: volumes have been declining since March, according to Oxford Economics.
Even the prices of memory chips used in servers could see a rare drop as cloud companies have been aggressively curtailing chip supplies over the past few quarters and now appear to be well-stocked. . TrendForce estimates that cloud service providers in North America and China have more than eight weeks’ worth of server DRAM inventory. Lack of components in other parts of the supply chain may also have hurt the construction of data centers.
The question for investors is how long and how deep the recession will be. According to Goldman Sachs, the memory-chip price cycle has lasted about two to three quarters over the past few years. This is a shorter cycle than before. One reason is that the industry has become more consolidated, particularly toward DRAM, while new sources of demand such as cloud servers have helped smooth the cycle. Customers may prefer to hold more inventory after disruptions in the past few years.
After a fall this year, Samsung shares are already in a big part of the bearish — though the worst of chip prices are probably yet to come. This will inevitably mean a few quarters for the company. But Samsung’s other big businesses like form foundry and telecom equipment could help cushion the blow compared to smaller rivals. In the long run, the company still looks like a formidable competitor.
Jackie Wong at [email protected]