China's Storage Chip Industry Growth Causes Massive Profit Drops for Global Giants Samsung and Micron

Samsung, the world's largest memory chip manufacturer, has been forecasted by analytical firms to experience a 90% drop in net profit for the first quarter of this year. This is due to the continuous decline in global chip prices, which has caused significant damage to the memory chip industry. The development of Chinese chips has undoubtedly dealt a blow to American chip manufacturers.

In recent years, Samsung has relied on memory chips to make significant profits, especially since the Galaxy Note7 incident in 2016, which caused significant damage to Samsung's mobile phone business. Since then, Samsung's mobile phone shipments have continued to decline, particularly in the Chinese market, where its market share has dropped from 20% to just 1%. Worldwide, its mobile phone shipments have decreased from 330 million to less than 260 million.

Mobile phones were originally Samsung's main source of income. However, as the mobile phone business declined, Samsung's performance also suffered. Nevertheless, from Q4 2016, memory chip prices began to turn around, driving rapid growth in Samsung's performance. Later, foreign media believed that Samsung's repeated reports of flooding, fires, and other incidents affecting memory chip production were subtly related to Samsung's hope that the memory chip business would continue to bring in substantial profits.

However, since the entry of Chinese chips into the memory chip industry, Samsung's strategy has been ineffective. Especially since 2022, China's memory chip industry has doubled in size, causing severe damage to Samsung's memory chips. The global price of memory chips has dropped by 50% since mid-2022, resulting in a series of consecutive drops in Samsung's net profit.

Meanwhile, the American memory chip manufacturer, Micron, has been experiencing losses since Q4 2022. Recent reports suggest that Micron's net loss for the first quarter of the 2023 fiscal year exceeded $2 billion, ten times higher than Q4 2022.

The sharp decline in profits for American chips is inseparable from the rise of Chinese memory chips. From the pricing of e-commerce channels, it can be seen that the price of domestic 2TB solid-state drives is now below 500 yuan, while the prices of Samsung and American 2TB solid-state drives are nearly 700 yuan, much more expensive than domestic solid-state drives. They have almost no competitive power against Chinese chips.

In addition, Samsung, Micron, and others are facing the problem of high inventory levels. Korean media reports that storage chip inventory in Korea has increased by more than two times, resulting in a loss of profit. Now, the loss has finally prompted Samsung to reduce production, while Micron has already reduced production and laid off staff since Q4 2022. Reducing production can avoid inventory continuing to rise and ensure the company's cash flow.

Compared with the past two years, when American chips were in high demand and Chinese companies were required to pay in advance, they are now all reducing prices and seeking buyers. This is a world of difference. All of this is because Chinese memory chips have broken their monopoly advantage, and their market share is increasing day by day, making it impossible for American chips to monopolize the market and make substantial profits.