- ‘Significant’ production cut announced by world’s largest memory chip maker
- Analysts see supply-demand equilibrium return faster than expected
- Micron Technology stock jumps 8%, close to 2023 highs
Samsung Electronics (005930:KS) plans to cut memory chip production as a result of a dramatic decline in semiconductor demand globally, causing prices to fall sharply.
The South Korean technology giant is the biggest memory chip manufacturer in the world so its decision to reduce chip production by a ‘significant’ amount will send shockwaves far beyond the microprocessor industry. Memory chips are crucial components is modern computing, used to store and quickly access data in everything from PCs, laptops, smartphones and thousands of other electronic devices.
HOW SAMSUNG WILL HELP MICRON
Analysts widely see Samsung’s output cut as a ‘huge positive’ for the memory chip industry, particularly for Micron Technology (MU:NASDAQ) and South Korean peer Hynix (000660;KS), helping to restore the supply and demand imbalance as customers reduced orders to wind-down existing inventory because of concerns for the wider global economy.
‘This is a big deal,’ said Citi analysts, who remind investors that Samsung has about a 50% market share in the DRAM (dynamic random-access memory) market.
‘We believe the cuts to both capex and production by the three DRAM providers should help ensure a DRAM recovery beginning in the second half of 2023, especially considering PC demand (roughly 10% of DRAM) appears to have stabilised and we expect both data centre demand (roughly 40% of DRAM) and handset demand (roughly 30% of DRAM) to both stabilise,’ they said in a note.
STOCK CLOSE TO 2023 HIGHS
Micron shares rallied 8% to $63.27, close to year-to-date highs.
Goldman Sachs analysts called Samsung’s move a ‘positive surprise and bodes well for Micron.’ The analysts hiked the price target by $5 per share to $70.
‘We believe ongoing, unprecedented and broad-based production cuts - which now includes participation from the industry’s largest producer, Samsung - coupled with stabilisation in the demand environment will drive a recovery in fundamentals in 2024 that exceed current Wall Street consensus,’ they said.
KeyBanc analysts added that they expect production cuts to help the industry restore a more even supply-demand balance earlier than previously expected.
‘We expect Micron shares to react positively in the near term from Samsung’s official announcement, but our conversations with investors over the past few weeks suggest that many investors have already anticipated some cuts by Samsung, which explains why Micron shares have held up quite nicely despite weakening fundamentals,’ they wrote in a note.
