Samsung Elec’s chip outlook turns grimmer on weakening DRAM prices

2020.06.22 14:07:07 | 2020.06.22 15:36:51

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A meaningful rebound in the chip cycle is turning increasingly doubtful amid weakening in spot memory prices, spelling trouble for industry leader Samsung Electronics which is already confronting multiple setbacks.

As of last Friday, the spot price of the 8-gigabit DDR4 DRAM was $2.85, down 21.6 percent from the April 3 peak of $3.637, according to market tracker DRAMeXchange.

The DRAM spot price is an important reference for chipmakers like Samsung Electronics in deciding the selling price and gauging future demand.

The contract price fixed for the second quarter was $3.29 in April, gaining 11.9 percent from the previous three months. But the spot price has been down for the past two months, and from May has even been hovering below the contract price.

If the weakening continues, chipmakers would have to cut the selling price for the July-September quarter.

Shares of Samsung Electronics were down 1.7 percent to finish Monday at 52,000 won ($42.8).

A supply glut had driven a free fall in memory chip prices since late 2018. The business cycle was showing signs of turning around from the final quarter of 2019.

Industry experts blamed the weak spot price to sluggish sales and rising inventories among clients in North America and Europe, where businesses have not fully normalized under the coronavirus lockdown.

“Some data centers have cut DRAM orders amid the inventory pile-up,” said Lee Seung-woo, researcher at Eugene Investment & Securities, and projected DRAM prices could soften in the second half compared to the first.

This would bode ill for Samsung Electronics as chips have been its sole bright spot amid sluggish shipments of TVs and smartphones due to the pandemic.

To make up for the Galaxy S20’s poor reception in the first half, the company is also eyeing a strong comeback with its new Galaxy Note 20 to be released in the coming months.

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Another lingering concern for Korea’s largest conglomerate is a potential criminal case against Samsung Group heir Jay Y. Lee over allegations of accounting fraud and stock manipulation.

A Seoul district court earlier this month rejected prosecution’s demand to arrest Lee, vice chairman of Samsung Electronics, and two other Samsung executives on charges of fraudulent accounting at the biotech unit Samsung Biologics and stock manipulation during the 2015 merger of two Samsung affiliates, Samsung C&T and Cheil Industries. Prosecutors had argued that the moves were intended to strengthen Lee’s control over the Samsung empire.

The decision of whether to indict Lee was handed over to an outside panel of 15 experts from various fields including law, academia and civic groups. The civilian panel is set to decide on Friday whether to move forward with charges against Lee. The prosecution is not legally bound to the findings but is highly likely to follow the panel’s recommendation.

By Kim Gyu-sik, Chun Gyung-woon, Seong Seung-hoon and Kim Hyo-jin

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