Overly optimistic expectations of improved demand for memory chips for smartphones have increased the risk of rising supply-demand tension, likely leading to a significant upswing in mobile DRAM contract prices.

TrendForce forecasts DRAM contract prices will increase by 13 per cent to 18 per cent quarter-on-quarter in the current period, with mobile chips leading the surge. But a murky demand outlook for 2024 means chipmakers are sticking with production cuts to maintain the supply-demand balance.

The mobile memory sector is facing “contract prices lingering at historical lows, prompting buyers to build up safe and cost-effective inventories”, TrendForce explained, noting the trend ensures mobile DRAM demand remains strong.

TrendForce added aggressive buying coupled with limited supply creates market tension, benefitting manufacturers in price negotiations.

However, it stated ongoing uncertainties in the smartphone market mean manufacturers are treading cautiously and not rushing to up production.

Earnings news from Asia’s chip giants is equally downbeat.

Samsung estimated operating profit in Q4 2023 dropped 35 per cent year-on-year to KRW2.8 trillion ($2.1 billion) and revenue nearly 5 per cent to KRW67 billion.

Taiwan Semiconductor Manufacturing Company registered an 8.4 per cent fall in revenue in December 2023 to TWD176.3 billion ($5.7 billion), with full-year sales down 4.5 per cent to TWD2.2 trillion.

Contract manufacturer Foxconn warned sales in the current quarter would drop, after revealing revenue in December 2023 fell 26.9 per cent to TWD460.1 billion.

Inflated expectations
In blog, TF International Securities analyst Kuo Ming-Chi offered a similarly sober outlook on the diminishing prospect of a quick handset recovery, stating inventory replenishment by major Android smartphone brands which began in Q3 2023 is expected to end this month.

Given changes in shipment forecasts and order visibility, he said any improvement in demand for Android smartphones may fall short of market expectations.

Kuo noted forecasts for low-to-mid-tier smartphones in non-Chinese markets have been revised downward, with widespread double-digit order reductions observed and local brands in emerging markets experiencing cuts of 40 per cent to 50 per cent.

Whether demand in the Chinese market improves after inventory replenishment depends on sales in the first three weeks of the Lunar New Year (starting on 10 February), he said.

While recent supply risks may stem from expectations of improving demand after inventory replenishment, he believes even if the call for Android phones does not improve structurally, the room for a downward revision is limited.

Canalys forecast in November 2023 the global smartphone market would rebound in 2024, with shipments rising 4 per cent to 1.2 billion units.

Taipei Times reported The Chung-Hua Institution for Economic Research found manufacturers in Taiwan expect business to improve in the next six months as customer inventories return to healthy levels, based on a survey of 500 local companies.

It reportedly stated the local semiconductor sector is betting on a strong recovery.

The question is will the wider industry have to wait six months for a sustained rebound to kick in, with inventories again starting to pile up over the next quarter or two?