Investors feeling anxious as chip prices slump

The price of memory chips is heading in the wrong direction for the manufacturers pumping them out. After an 18 month chip boom, the bubble appears to have burst as investors back away from the market. The recent chip bug scandal combines with Samsung’s disappointing profit estimate appears to be giving some investors itchy feet.

Prices of high-end flash memory chips used in smartphones dropped by 5 per cent in Q4 and some analysts are now predicting that the industry’s growth rate will fall by more than half in 2018 to 30 per cent. Share Samsung to dip 7.5 per cent last week, while SK Hynix share price fell by 6.2 per cent.

It comes on the back of a stellar year and a half, in which the chip industry expanded by nearly 70 per cent thanks to growth in smartphones and cloud service markets.

“Memory chips will likely see a gradual price decline in 2018 if demand remains strong and appetite from servers holds,” said Lee Jae-yun, analyst at Yuanta Securities Korea.

Yet despite the dip, 2018 should remain a stable year for the industry, with no immediate risk of a crash. The supply of NAND flash memory chips, in particular, will grow 43 per cent this year, up from last year’s 34 per cent, causing prices to drop by about 10 per cent, brokerage Nomura estimates. Such solid demand will keep the industry looking more than healthy, with investor confidence for now remaining.

”Besides some minute adjustment, I am currently holding Samsung shares almost without change,” said Kim Hyun-su, fund manager at IBK Asset Management. “I don’t think the share price is expensive as they have recently been increasing dividends a lot – and as of now, the expected profit levels are very high.”

So, it’s not a case of panicking just yet. However, the massive growth seen in 2016 and 2017 will most likely not be matched this year. 2018 will instead by a strong and steady year, if not spectacular, for the chip market. 

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