The global economic downturn has adversely affected the demand for semiconductors and memory chips. As a result, major South Korean chip manufacturing companies have decided to cut their production short for this year.
The global economic downturn has adversely affected the demand for semiconductors and memory chips. As a result, major South Korean chip manufacturing companies have decided to cut their production short for this year.
South Korean chipmakers have cut their output by the most for the first time since 2008 in February this year, indicating that the decline in semiconductor demand may be deeper and longer-lasting than previously anticipated.
According to figures from South Korea’s National Statistics Office, production fell 41.8 per cent year on year, worsening from a 33.9 per cent decline in January. Inventories rose by 33.5 per cent, while manufacturing exports dropped by 41.6 per cent, indicating an ongoing decline.
Chipmakers are one of the key components of South Korea’s trade-dependent economy, accounting for roughly 12 per cent of total shipments in February. The deterioration in worldwide chip demand adds to the difficulties facing the country’s economy, which already shrank from the previous three months last quarter.
Seoul’s officials are expecting for a rebound in the second half and are keeping an eye on semiconductor investment as a critical development engine for the economy. The country’s government authorised a boost to the semiconductor sector on Thursday, offering firms tax breaks to encourage investment.
Rising trade tensions between the United States and China, as well as a possible economic recession, pose risks to South Korea’s chip sector, as central banks restrict policy to fight inflation. Growing layoffs by US technology firms indicate a waning interest in investing.
Separately, South Korea’s total industrial production dropped 8.1 per cent year on year in February, exceeding the median estimate of a Bloomberg poll. The cyclical leading indicator also dropped 0.3 per cent from the previous month.
“The slowing global economy and large inventories have weighed on demand.” Customers aren’t purchasing semiconductors because demand has dropped, according to JJ Park, an expert at JPMorgan in Seoul, as per a Financial Times report.
“Inventory destocking will be completed over the course of next year, and the market may recover in 2024.”
To compensate for the excess, chipmakers are reducing their spending plans. SK Hynix, along with US rival Micron Technologies and Japan’s Kioxia Holdings, are slashing spending, though Samsung is not considering an output cut.
Samsung anticipates that the memory chip industry will stay slow until the end of 2023. Analysts said the industry leader was sticking to its previous plan of raising capital expenditure during the downturn to gain market dominance.
“Samsung is backstabbing its fellow oligopoly competitors,” wrote Dylan Patel, principal researcher at semiconductor research firm SemiAnalysis, earlier this month in a report. “Samsung seeks a Pyrrhic market share victory.”
During its third-quarter earnings conference in October, Samsung stated that its capital expenditure this year would total 47.7 trillion South Korean Won or $37.5 billion. According to Patel, the fourth-quarter expenditure will nearly double that of the second and third quarters.
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