Samsung, the world’s largest maker of memory chips, smartphones and televisions, will report preliminary third-quarter earnings results on Wednesday.

According to SmartEstimate forecasts from 19 analysts at the London Stock Exchange, Samsung’s operating profit from July to September could fall to 2.1 trillion won, compared with Samsung’s third-quarter operating profit of 10.85 trillion won last year.

That’s because the chip division, traditionally Samsung’s biggest profit-making unit, could report a quarterly loss of 3 trillion to 4 trillion won after memory chip prices bottomed out and didn’t rebound as quickly as some had predicted.

Samsung’s chip production cuts have also hurt economies of scale and raised the cost of chip manufacturing, analysts said.

After first announcing production cuts in April, analysts said Samsung cut production further in the third quarter to reduce inventories and deal with a chip glut that has led to the worst industry downturn in decades.

Smartphone and personal computer makers have been avoiding buying new memory chips out of fear of a recession, choosing instead to deplete existing inventories over several months. Their inventories are now low enough that demand is expected to rebound early next year, analysts say.

Samsung recently received its first server memory chip order in a year from a North American data center company, sparking hopes that data center customers will also start buying chips again, KB Securities said in a report late last month.

Strong demand for memory chips used in artificial intelligence, such as high-bandwidth memory (HBM), remains a bright spot, but Samsung is lagging behind rival SK Hynix in developing such chips and securing customers such as AI chip leader Nvidia.

Samsung’s mobile business is likely to post an operating profit of about 3 trillion won, according to the average forecast of five analysts, after the company launched a high-end foldable smartphone in the quarter that boosted sales despite a sluggish global smartphone market.

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Details of the merger are still being kept under wraps, but sources say Western Digital shareholders will control slightly more than half of the combined company. This is contrary to the previous Kyodo News Agency in Japan, which previously stated that Kioxia will lead the new company after the merger.

However, the source also mentioned that during the negotiations between the two parties, it was suggested that Kioxia’s executive team would lead the daily management of the merged company, but Western Digital executives would also play an important role.

▲ Source: Kioxia

As far as the current situation is concerned, although the negotiations between the two sides are progressing smoothly, it may take some time before the final agreement is finalized, during which they may change their minds, and may even end in failure to reach any agreement.

It is said that the new company after the merger will adopt a dual board representation system, and both chipmakers will be members. The new company will be based in Japan and will be listed on Nasdaq and Tokyo; at the same time, Kioxia’s main investor, Bain Capital, will also receive a special dividend.

Previously, Reuters also reported that Kioxia will contribute 43% of the merged company, Western Digital 37%, and the remaining 20% will be held by existing shareholders such as Toshiba. The new merged company plans to list on the Tokyo Stock Exchange in the future. listed.

Note: Kioxia was born out of Toshiba, the “father of flash memory”. Although both Western Digital and Kioxia fabs are producing 3D NAND, each maintains a different business strategy. Kioxia’s main focus is memory chips, while Western Digital tends to supply NAND-based products, that is, SSD products.

As of the first quarter of 2023, Kioxia has a 21.5% share of the NAND memory market, while Western Digital holds a 15.2% share. Samsung, on the other hand, held a 34% market share during the same period. Therefore, the potential entity after the combination of Kioxia and Western Digital’s flash memory business would become the leading supplier in the global NAND memory market, with a market share of more than 36.7%.

It was previously reported that the revenue scale of the new company after the merger is expected to surpass Samsung and become the world’s largest NAND memory manufacturer. Due to the deteriorating market conditions and sluggish performance of storage products used in smartphones and other uses, the two parties hope to merge to improve operational efficiency. The report quoted people familiar with the matter as saying that the merger will be further negotiated on details such as the proportion of capital contribution under the condition that Kioxia has the dominant power.

▲ Source: Kioxia

According to data from the research organization Omdia, Kioxia and Western Digital will rank third and fourth in terms of market share in 2022. The combined NAND memory revenue scale is expected to reach 2.5 trillion yen, surpassing Samsung Semiconductor, the leader in the NAND industry.

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Stimulated by the positive earnings report, Micron’s stock price rose 3% in after-hours trading in the US stock market (it was only slightly higher in the intraday trading session of the day). Compared with the beginning of the year, Micron’s stock price has risen by one-third. The most important driving force for this round of stock price rise comes from the industry wave of generative artificial intelligence. The market believes that the popularity of ChatGPT will lead to the prosperity of generative artificial intelligence technology and servers Development, thereby driving demand for memory chips from Micron Technology.

Regarding the financial performance, Micron Technology CEO Sanjay Mehrotra said that the recent accelerated popularization of generative artificial intelligence technology, artificial intelligence servers for memory chips and storage chips market pull, exceeded external expectations, but At the same time, the mainstream data center server memory chip market continues to remain sluggish.

Sanjay Mehrotra also mentioned that some customers continue to reduce memory chip inventory, which is conducive to chip price trends, which also brings confidence to the memory chip market.

During the global COVID-19 pandemic, consumers’ spending on smartphones and PCs has skyrocketed, which naturally also boosted orders for memory chips. The price of memory chips has fallen, and inventories in the hands of customers have increased sharply.

Kinngai Chan, general manager of Summit Insights Group, an investment research company in the US technology industry, said that they believe that the current round of memory chip inventory adjustments is over.

Chang Jingang said that by understanding the actual situation of the industry, he found a positive signal that the demand for memory chips has begun to stabilize. However, in the second half of this year, the demand for memory chips in the three fields of personal computers, smartphones and traditional servers will still maintain a certain Complexity.

In the third fiscal quarter, Micron Technology achieved sales revenue of 3.75 billion US dollars, exceeding Wall Street analysts’ average expectations of 3.65 billion US dollars. Revenue, which was basically in line with analyst expectations.

In terms of adjusted profit, Micron posted a net loss of $1.43 per share, missing analysts’ expectations for a loss of $1.58 per share.

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As the world’s largest memory chip manufacturer, the revenue of Samsung Electronics’ storage business has fallen sharply year-on-year for three consecutive quarters; SK Hynix’s revenue has also fallen sharply year-on-year for three consecutive quarters. There was even a net loss.

Under the background that the demand for consumer electronics products has not yet improved, the impact on major memory chip manufacturers is still continuing. Although the fire of artificial intelligence has brought new demand and major manufacturers are also cutting production, the overall Demand is still not optimistic.

According to relevant media reports, as suppliers’ inventories are still high, global memory chips will remain a buyer’s market in the short term, and prices will still fall into a tug-of-war between suppliers and customers in the second quarter.

Although the overall situation is still not optimistic, some suppliers already expect to improve in the second quarter. SK Hynix disclosed in its first-quarter financial report that they expect revenue to rebound in the second quarter after bottoming out in the first quarter as sales gradually increase.

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Consumer electronics demand decline, the impact is obvious in addition to memory chips, but also microcontrollers (MCU). The latest reports show that the demand for microcontrollers in PCs and other consumer electronics products is expected to decline significantly in the fourth quarter compared to the third quarter.

The same memory chip market segments will not all decline in demand, microcontrollers will also be part of the field to maintain a stable demand.

Related media reports have indicated that the 32-bit microcontrollers required for automotive and industrial control applications will maintain a stable demand.

The stable demand for microcontrollers in automotive and industrial control applications means that in the case of declining demand for microcontrollers in consumer electronics, there will be stable orders from automotive and industrial control applications, and the related manufacturers will be able to maintain certain performance.

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According to market research firm Tiburon Consulting, the average contract price of an 8Gb DDR4 DRAM chip for personal computers fell 14.03 percent from $3.35 to $2.88 in July this year, the highest since February 2019 and the first time since 2020 that it fell below $3.

In the third quarter, DRAM and NAND flash prices are expected to fall 5 percent to 10 percent and 8 percent to 13 percent, respectively. This means that Samsung Electronics and SK Hynix could perform poorly in the second half of the year.

According to a survey by foreign media, the price of DRAM spot has fallen 18% since the decline began on June 10, and is down 20% compared to the price at the beginning of this year.

The survey also shows that DRAM spot prices have dropped significantly this week, with the average price of 8GB DDR4 DRAM, for example, dropping to $2.91 on Thursday, down 11% from $3.27 earlier this month.

As the global economic outlook is not optimistic, leading to a decline in demand, industry watchers and research institutions are also pessimistic about the price outlook for DRAM, and the performance of related manufacturers will also be affected.

And it is worth noting that research institutions have predicted that the global DRAM market is not ideal this year, will be even less optimistic next year, the market size will only grow 8.3%, the first time in history below 10%, demand is expected to grow 14%, the situation of oversupply will be more serious.

In the global DRAM market, Samsung Electronics and SK Hynix accounted for more than 70% of the share, much higher than other manufacturers, if the price decline, their performance will be affected.

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