The Covid-19 pandemic that created a shortage in semiconductors, which impacted from cars to game consoles, has now become an excess supply issue in certain parts of the market. Companies assembled reserves of chips, but then the economy declined and consumers no longer wanted items like smartphones and laptops. Samsung and other memory chip producers SK Hynix and Micron have encountered a hard situation as a consequence.
Due to the huge demand for electronics during the Covid-19 pandemic, semiconductor manufacturers experienced a shortage of chips, which caused disruption in the production of a range of products, from cars to consoles. Prompted by the extra demand for memory chips from South Korean companies like Samsung, SK Hynix and Micron, as well as for less advanced chips used in smaller devices, this shortage lasted through the early part of 2022. It even affected automotive production, with major car manufacturers reporting a decrease in output. However, the supply and demand of certain chips has since become more balanced, and in some areas, the shortage has since turned into a surplus.
Right now, there is an oversupply of NAND and DRAM memory chips used in computers, laptops, and data centers, as companies had stockpiled them before the slowdown in the economy. This is partially because people had purchased these products during the pandemic, leading manufacturers to focus on selling their pre-existing inventory and thus decreasing the demand for chips. Peter Hanbury, partner in the telecoms, media and technology practice at Bain & Company, mentioned that some specialized chips remain in high demand and have a long lead time. As such, their prices have yet to improve.
The pandemic caused a shortage of semiconductors, which caused prices to rise and positively impacted the profits of the biggest chip makers, including Samsung, the world's largest memory chip manufacturer. Nonetheless, this year has been a challenge for Samsung, SK Hynix, and Micron, as Samsung reported a 95% year-on-year decrease in operating profit for the second quarter, and SK Hynix went from a profit in the same period last year to a loss. Even the world's largest chipmaker, Taiwan Semiconductor Manufacturing Company, saw a 23.3% year-on-year decrease in net income for the second quarter, the company's first quarterly profit decline in 4 years. Meanwhile, the weak PC market will likely have a negative effect on Samsung, SK Hynix, and Micron. As for TSMC, the global smartphone market — a major revenue source — is struggling as well; China Renaissance Securities analyst Sze Ho Ng noted that it “is still not seeing any meaningful pick up”.
In a bid to drive up chip prices and reduce the supply in the market, the key memory chip businesses have declared production reductions.Samsung stated that they expect a revival in global demand for the second half of the year, with similar declarations from other firms.Nevertheless, TSMC revealed last week that they anticipate "continued inventory adjustment" from customers.Ng stated that, "Following this year's correction, I think there will be a second-half growth scenario for TSCM, but the strength of this will be contingent on the macro environment."Ultimately, the revival of these companies will depend on whether the demand for end products, such as consumer electronics, increases, but this is tightly linked to an uncertain macroeconomic recovery.
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