Inflation Hits South Korean Chip Production; Samsung Braces To Win Market Share Capitalizing On Downturn

  • South Korea's chip production decreased for a fourth consecutive month in November, sliding 15% year-on-year for its most significant drop since 2009, Statistics Korea found. 
  • South Korea's chip output was down 11% M/M as semiconductor inventories surged over 20% Y/Y, reflecting a supply glut as high inflation hit global demand for technology products after a two-year boom during the pandemic, Financial Times reports.
  • South Korea is a leading producer of microchips with companies like Samsung Electronics Co, Ltd SSNLF and SK Hynix Inc HXSCL.
  • "The slowing global economy and large inventories have hit demand. Customers are not buying chips as demand has collapsed," said JJ Park, an analyst at JPMorgan in Seoul told FT. 
  • "Inventory destocking will be completed throughout next year, and the market could rebound in 2024." 
  • Chipmakers slashed investment plans to adjust to the oversupply
  • SK Hynix, U.S. rival Micron Technology, Inc MU, and Japan's Kioxia Holdings cut spending.
  • Industry leader Samsung stuck to its past strategy of increasing capital spending during the downturn to grab market share, analysts said.
  • "Samsung is back-stabbing its fellow oligopoly competitors," Dylan Patel, chief analyst at semiconductor research group SemiAnalysis, wrote. "Samsung is looking for a Pyrrhic market share victory."
  • Samsung's increased capital spending and chip production will exacerbate the global oversupply, analysts have warned.
  • "The oligopoly is broken, as Samsung's new chair wants to eat market share," Patel noted, warning of "pure carnage" in the DRAM (dynamic random-access memory) market.
  • Samsung will likely announce weaker fourth-quarter earnings next week.
  • Photo by Pierre Lecourt via Flickr
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