The unprecedented boom in memory semiconductors that has driven Samsung Electronics to record profits may soon backfire, according to a warning from a prominent Japanese economic newspaper. The Nikkei reported on July 8 that Samsung's operating profit reached 89.4 trillion won in the second quarter, and that the semiconductor division's profits this year are expected to surpass the cumulative operating profit of nearly 40 years since its inception. The newspaper highlighted that the surge in memory prices is not only boosting Samsung's performance but also leading to price increases for end products like PCs and smartphones.
Indeed, Apple raised prices on some of its Mac and iPad products last month, with CEO Tim Cook citing the spike in memory semiconductor prices as a reason. The term 'chipflation' has emerged to describe the combination of rising memory chip prices and inflation.
In the U.S., lawsuits have been filed regarding the surge in memory prices. Last month, some consumers and small businesses initiated a class-action lawsuit against Samsung Electronics, SK Hynix, and Micron Technology, the three major memory manufacturers. The plaintiffs detailed specific damages in their complaint, including price increases for PCs and restrictions on purchasing memory products. They alleged that the companies are limiting the supply of general-purpose DRAM under the pretext of shifting production to high-bandwidth memory (HBM) for AI applications, which has driven prices higher. Currently, the three companies hold about 90% of the DRAM market share.
As the memory supply shortage continues, there are signs of companies seeking to diversify their supply chains to Chinese manufacturers. The Nikkei cited reports indicating that Apple is considering sourcing memory from Changxin Memory Technologies (CXMT) and Yangtze Memory Technologies Co. (YMTC), while U.S. PC manufacturers HP and Dell are also evaluating the adoption of CXMT's DRAM. Lenovo has reportedly already incorporated YMTC memory into PCs sold in the U.S.
The Nikkei also noted that the concentration of memory production in South Korea poses risks of trade friction. Samsung Electronics and SK Hynix together account for 60% of the global memory market share.
Professor Kwon Seok-jun from Sungkyunkwan University warned in the Nikkei that the increasing demand for AI memory could exacerbate the concentration of supply among South Korean companies, potentially leading to future trade disputes. He referenced the U.S.-Japan semiconductor friction of the 1980s, stating that if South Korean companies' market share becomes excessively high, there may be calls to address monopolistic conditions. He suggested that the U.S. government might demand a shift of production bases to the U.S. or increased local investment.
In response to the supply shortage, Samsung Electronics has ramped up production. Last month, the company announced plans to invest a total of 800 trillion won with SK Hynix to build four semiconductor factories in South Korea, with plans to gradually begin operations at new plants in Pyeongtaek and other locations after the end of this year.
The Nikkei anticipates that supply pressures will continue for the time being, but as companies increase production, there is a risk of oversupply leading to a downturn in market conditions. Advanced products for AI applications often require more complex production technologies, which can lead to higher investment costs compared to existing products. If market conditions deteriorate, large-scale facility investments could become a financial burden.
In fact, Samsung's semiconductor division recorded its largest loss in 15 years due to market downturns in 2023. The Nikkei assessed that the management decisions of Samsung, which has experienced an unprecedented boom just three years after that loss, are becoming increasingly challenging.
* This article has been translated by AI.
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