Samsung Takes a Stand: Halts Production of Nearly Half its Memory Chips to Force Price Increase

The market was supposed to recover in 2024, they said… But no, everything indicates otherwise. The year 2023 has been harsh for the semiconductor sector and technology in general, where good prices have only been enjoyed in SSDs, RAM, and partially in mobile phones due to their direct relationship with memory chips. However, the upcoming year is predicted to be even tougher, with Samsung taking the first step by halting memory chip production.

It was an open secret. Intentions were more or less carved into the reports from TrendForce and other analysts in previous days, where we now have precise data on how the memory sector will face the end of the year and the beginning of the following one. As you may have guessed, it’s going to be hard.

Samsung is cutting memory chip production by nearly half

The production halt began earlier this year, with Samsung being the last to do so. Specifically, in the first half of the year, DRAM chip production fell by 20%, while NAND Flash production plunged by an astonishing 30% within the South Korean giant’s factories.

What is Samsung’s plan now? To drain its inventory more swiftly while facing weakening demand due to the ongoing crisis and inflation driving the world. The figures are clear:

– A 30% reduction in DRAM memory chips (RAM for PCs, servers, and laptops).
– A 40% decrease in NAND Flash chip production (SSDs, hybrid HDDs, mobile phones, memory cards, etc).

Although Samsung is the largest in the world in this area, its solo production cut wouldn’t be a major issue. The real problem lies in the domino effect it creates, as Micron and SK Hynix will follow suit with varying percentages. So, how do these measures impact regular users?

Higher prices due to scarcity

We return to the starting point of a few years ago. Scarcity destroyed good prices and skyrocketed them for any electronic component with memory. A look at historical prices for products of this kind is enough to remind us of the madness that transpired.

Well, we’re going back to that same scenario, where the strategy will be even more aggressive than before. The three memory giants plan to empty inventory, create chips below demand, allow higher prices knowing they won’t increase production, and thus make more money.

The reason behind this strategy is crucial: they have bled money for a year and lost massive amounts, which they now need to recover and turn the numbers green as they have to spend considerable sums on R&D as governments have cut subsidies.

Therefore, if you remember the price absurdities of scarcity in the past, where they made enormous profits without any actual losses, it’s hard not to imagine the worst possible scenario.

Another key figure: the 8-inch wafer production rate plummets

It concerns Driver ICs and general ICs. The latest report reveals that the prospects for the first quarter of 2024 are worse than expected, causing the production rate of 8-inch wafers to fall between 50% and 60%. The report justifies these figures as follows:

“The 8-inch production capacity utilization rate mainly benefited from sporadic orders to replenish inventory for Driver ICs in the second quarter. In addition, wafer foundries started pricing strategies to encourage customers to place pre-orders, offering solid support. However, in the second half of 2023, persistent macroeconomic and inventory challenges led to the evaporation of the projected demand increase.

Heading into 2024, with the prevailing economic turbulence, the overall semiconductor foundry capacity utilization rate will face challenges in recovery. The 8-inch capacity utilization for 1Q24 is set to reflect or potentially fall below 4Q23 figures, revealing a clear lack of recovery indicators.”

As we can see, the impact is truly widespread, with only the AI sector seemingly unscathed, while the automotive industry is beginning to feel the strain. In fact, the number of brands collapsing or disappearing is increasing, especially in China, as the market eliminates them. BYD is on track to become the world’s largest automaker if it hasn’t already surpassed Toyota and Tesla.

This fact is leaving a “trail of blood” behind