Daily Management Review

Samsung’s New Normal Shorter Chip-Cycle


Even though, Samsung has recorded poor performances in the last quarters of 2019, analysts expect an imminent recovery.

The emergence of shorter “memory-chip cycle is drawing close. Likewise, a “34% slump in quarterly operating profit” is seen in Samsung Electronics’ 2019 year end figure. Even though the figure may appear “grim” it still leaves behind the expectations of the analysts.
Given the lesser number of competitors around, the company doesn’t have to worry much about “prolonged downturns”; although the dropping numbers in supply hints “at an unusually quick recovery”. The company can turn its attention on “innovation” besides “managing regulatory risks”.
This poor performance could be an outcome of a “glutted memory-chip market”. The technology giant of South Korea reported decline in operating profit in its last quarter for the fifth consecutive year. However, we can hope that there could be a chance of imminent recovery. The DRAMeXchange, an industry tracker, has predicted that following the drop from the peak of mid-2018, the “DRAM memory chips” contract prices “may stop falling” in 2020’s Q1, while the recovery may come as soon as in the Q2 of 2020 itself.
Consolidation could play a role in the recovery. Samsung along with “compatriot SK Hynix, and Micron from the U.S. are the manufacturers of “DRAM chips” that are used globally in smart-phones, data centres as well as in PCs. In fact, roughly a decade ago these three manufacturers had ten more rivals. Given the triopoly there can be an aggressive approach on the output slashing and capital spending. While, Reuters reported:
“Bernstein estimates industry DRAM memory capex for 2019 fell by as much as a quarter. As a result, supply growth for this year may be at a record low”.
The shortage could be advantageous for Samsung, which saw surge of 48% in its share over the last year. The 5G based next-gen smartphones, along with the possibility of easing “the U.S.-China trade war” could increase “global demand for semiconductors”. Even though the company’s leadership is surrounded in many legal troubles, an increase chip demand could fetch the company more time to “invest in new sources of growth”.
Moreover, Reuters added:
“This pricing power has attracted unwelcome official attention. Chinese antitrust watchdogs launched a price-fixing investigation into Samsung and its two rivals, Reuters reported in 2018. Even so, a quicker, softer turnaround in a notoriously cyclical industry would be a welcome new normal”.