Far exceeds the appropriate level of 5-6 weeks
In an emergency situation, requiring 8 months to process the products
Opinions over uncertainty of turnaround in the second half
Possible losses for Sams

Photo Image

There is an emergency situation in memory industry, which is Korea’s main export product. Due to the global economic downturn, there has been a drop in in demand in memory products, and the inventory level has increased to 20 weeks (about 5 months) worth. It is uncertain whether a rebound will occur in the second half. There are concerns over the possibility of losses in not only for SK Hynix but also for Samsung Electronics.

On the 19th, it was confirmed that the number of days stocked by domestic memory manufacturers is 140 days (20 weeks) when compiling the circumstances of the semiconductor industry. This figure far exceeds the appropriate inventory level (5-6 weeks). It is worse than what the securities industry estimated n the second half of last year, which was 10 weeks of DRAM and 14 weeks of NAND flash stocks. The number of days in inventory is an estimate of the time it takes from the completion of production of finished semiconductor products to shipment, and is used as an indicator to determine when the current inventory will be exhausted.

This is not the end of the problem. 20 weeks is the estimate of the manufacturers; hence, considering customers inventory, the situation is much worse. Due to variability in memory industry, smartphone, PC, and server manufacturers tend to stock up memory products in advance for smooth production of their products.

There is an additional concern that an analysis calculating that the piled up inventory is up to 30 weeks worth, when including customers inventory. When doing simple calculations, it is assumed that it will take 7 to 8 months to process the current inventory. A bad patch is continue to be expected in the second half of the year for the memory industry.

There are concerns about negative performance for domestic semiconductor companies due to declining demand and soaring inventory. The semiconductor industry predicts that SK Hynix's performance in last year’s fourth quarter to be a loss. SK Hynix will announce its fourth quarter performance on the 1st of next month.

Samsung Electronics, the world's largest memory manufacturer, is also raising the possibility that its memory division will turn to a loss in the 1st quarter. The last time Samsung Electronics recorded a loss in the memory business was 14 years ago, in the first quarter of 2009. Samsung Electronics announced that its operating profit in the fourth quarter of last year decreased by 69% compared to the same period last year.

A high-rank official in the semiconductor industry said, "Looking at the current inventory level, there are more and more people who perceive that it will be difficult for the market to turn the situation in the second half of this year."

Another official from a semiconductor company said, "Both memory suppliers and customers are in panic regards to handling inventory. By extending memory manufacturing and equipment maintenance and repair periods or switching to the next generation process, Manufacturers are aiming to reduce production while replacing parts.”

By Staff Reporter Dong-joon Kwon (djkwon@etnews.com)