Global DRAM Revenue Collapses, Prices In Free Fall Amid Escalating Trade War

Dynamic random-access memory (DRAM) is a type of memory that is used for data or program code that supports a computer processor. DRAM has seen explosive sales growth across the world in the last decade, thanks to globalization. But in a new report by DRAMeXchange, a division of TrendForce Corp., global DRAM revenue collapsed 42.5% to $14.8 billion in 2Q19 on a YoY basis.

The sales of commodity DRAM, server DRAM and consumer DRAM plunged 30% in 2Q19 YoY, except mobile DRAM/ eMCP products, whose declines were about 10 to 20%.

DRAMeXchange noted that sever DRAM prices experienced the sharpest fall, down 59.4% in the last six months.

Industry experts say the trade war, initiated by the Trump administration, has already damaged the global economy as protectionist actions escalate in 2019. The probability of an all-out trade war is increasing, has dramatically reduced the need for global IT firms, is the main reason for falling DRAM prices.

South Korea's exports have recorded seven consecutive months of contraction amid slowing economic growth in China and weak demand for semiconductors. In the first six months of this year, semiconductor exports plunged 22.5% YoY.

DRAMeXchange said contract prices for mobile DRAM and server DRAM, which make up 70% of global shipments, remained in a downtrend in 3Q.

The downturn in global semiconductor revenue isn't expected to turn up this year.

DRAMeXchange said, "while the material export restrictions imposed by the Japanese government on Korea early last month caused prices to bounce back on the spot market, it added that it was not effective enough to clear the large inventories...Despite the ripples in the market formed as a result of the Japan-South Korea incident, contract prices mainly depend on the basic supply-demand dynamics...Since production capacity was not affected substantially, we don't see it as a significant force keeping prices up."

Samsung Electronics in 2Q19 reported 6.6 trillion won in operating profit, a 55.6% drop YoY. Its operating profit dove as a result of its faltering semiconductor business. Diving deeper into Samsung's latest earnings, semiconductor operating profit tumbled 70% YoY to 3.4 trillion won, the first time under the 4 trillion won level since 2016.

SK Hynix was another semiconductor company that reported disastrous earnings in 2Q19. The chipmaker's operating profit fell 89% in 2Q YoY.

DRAMeXchange said the global semiconductor industry is expected to falter in 2H19 as manufacturers could see declining profitability as chip prices fall.

With the risk of an all-out trade war between the US and China rising, a global trade recession could be imminent, could deliver another devastating blow to the semiconductor industry in 1H20.