After a brutal downturn this year, South Korea’s memory chip industry is expected to start recovering in 2020, led by growth in demand for 5G-enabled devices and the resumption of investments in data centers, according to industry observers on Sunday.
“The fundamentals of the semiconductor industry are showing signs of improving in 2020,” said Lee Su-bin, an analyst at Daishin Securities.
The DRAM market is projected to reach a balance in supply and demand, as prices are expected to rebound in the second quarter of next year as result of major chipmakers’ supply adjustments, Lee said.
“While SK hynix and Micron have started to scale back their production, Samsung Electronics is also expected to adjust its supply as it is scheduled to turn its DRAM Line 13 into an image sensor line next year.” the analyst said.
“The supply adjustment is forecast to affect the market starting in the second quarter, striking a balance in supply and demand and driving up DRAM prices.”
Engineers walk in a clean room at Samsung Electronics’ memory plant. (Samsung Electronics)
According to market researcher DRAMeXchange, falls in the average selling prices of DRAM chips have moderated in recent months after a 20 to 25 percent plunge on-year in the first half of the year amid weak demand and high inventory levels.
As data centers started purchasing DRAM chips in the second half of the year, the inventory levels at Samsung and SK hynix are going down, the market tracker said.
“Once suppliers’ inventory levels have sufficiently lowered, they will no longer need to cut prices to encourage further sales,” said a DRAMeXchange report. “These factors have the potential to help DRAM prices stabilize and recover in 2020.”
Samsung said its inventory level will normalize in the first half of 2020, as data centers are increasing their purchases and demand for 5G smartphones is rising, during a conference call on its third-quarter earnings last month.
5G is expected to be a major factor that will drive up the recovery of the semiconductor market next year, according to IHS Markit.
Owing to the expansion of 5G phones, the total revenue of the global chip market is estimated to rebound to 5.9 percent growth in 2020, after a 12.8 percent plunge in 2019, a report by the market researcher showed.
The market’s global revenue is forecast to rise to $448 billion next year, up from $422.8 billion in 2019.
“Throughout the history of the semiconductor industry, every market downturn has ended with the arrival of a technical innovation that spurred a major increase in demand,” said Len Jelinek, senior director of semiconductor manufacturing for IHS Markit’s Technology.
Both Samsung and SK hynix are planning to start mass production of the fifth generation of low power DDR for 5G devices, which would contribute to the market’s recovery.
“Supply of DDR5 will be limited as new process technologies will be applied to the new products,” said a report by SK Securities. “This will cause the prices to bounce back.”
By Song Su-hyun (email@example.com