The time had to be different.

The memory-chip sectorFamous for its Boom-and-bust cycles had been changed its ways. Combination of For more disciplined business management, and for new markets its products — including 5G technology and cloud services — would ensure that companies delivered more predictable earnings.

Even though this was less than a decade after the memory companies issued such statements, the $160 Billion industry has remained suffering one of its worst routs ever. There’s a glut of The chips are still in warehouses. Customers have cut orders and the product prices have plummeted.

“The chip industry thought that suppliers were going to have better control,” Avril Wu is TrendForce’s senior vice president of research. “This downturn has proved everybody was wrong.”

The unprecedented crisis isn’t just wiping out cash at industry leaders SK Hynix Inc. and Micron Technology Inc., but also destabilizing their suppliers, denting Asian economies that rely on tech exports, and forcing the few remaining memory players to form alliances or even consider mergers.

It’s been a swift descent from the industry’s pandemic sales surge, which was fueled by shoppers outfitting home offices and snapping up computers, tablets and smartphones. As inflation continues to rise, businesses and consumers are avoiding large purchases. The makers of These devices are the most popular buyers of Memory chips are stuck in stockpiles suddenly of Components are sufficient and there is no reason to buy more.

Already, Samsung Electronics Co. and its Competitors are making losses on each chip produced. They are expected to lose a record amount of $5 billion in operating expenses this year. Inventories — a critical indicator of demand for memory chips — have more than tripled to record levels, reaching three to four months’ worth of supply.

Samsung appears to be the exclusive smartphone maker one This will allow them to escape relatively unharmed, thanks its heft and diversified business, but even the South Korean giant’s semiconductor division is headed toward losses. Investors will feel a sense of security. of The company will report quarterly earnings this week and the extent of the damage.

It is a highly competitive industry. suffering From a special combination of circumstances — a pandemic hangover, the war in Ukraine, historic inflation and supply-chain disruptions — that have made the slump much worse than a regular cyclical downturn.

Micron has aggressively responded to the plummeting US demand. Late last month, the company announced that it would reduce its workforce. its In addition to decreasing output, budgets should be allocated for new equipment and plants. The rate at which the industry rights itself will depend on how quickly the company’s counterparts make similar moves, Chief Executive Officer Sanjay Mehrotra said.

“We have to get through this cycle,” He stated. “I believe the trend of cross-cycle growth and profitability is still in place.”

Hynix in South Korea has cut investments and reduced output. The company’s inventory glut is partly the result of its Acquisition of Intel Corp.’s flash memory business — a deal struck before the industry’s decline.

All eyes are now on memory-chip king Samsung, which has thus far said little about the industry’s near-term prospects. The world’s largest maker of Display panels, chips and smartphones will all report fourth-quarter earnings Tuesday. A conference call on Tuesday is followed by questions from analysts. its Capacity management plans

The Korean tech company has a history of spending even in downturns. It hopes to be able to pull out with higher production and better profitability once demand is up. The market is betting that the company will be more efficient this time. its Supply of chip supplies and lifting its Stock price over the past week

Lam Research Corp. is a manufacturer of chip-manufacturing equipment. said last week that it’s seeing an unprecedented reduction in orders as memory customers cut and postpone spending. The company includes Micron, SK Hynix, and Samsung executives. its Customers who are the most successful in memory markets have declined to give a time frame for such an action.

“We’ve seen extraordinary measures within the memory market,” Lam CEO Tim Archer stated on a phone call to investors. “It’s at levels that we haven’t seen in 25 years.”

It’s always been difficult for memory makers to handle spikes and troughs in demand. It takes many years to bring new factories online. of dollars, so it’s hard to get the timing right.

Companies in this industry have become more cautious due to the increased risks. They’re more focused on profitability than trying to grow quickly and gain market share.

That’s especially true for so-called DRAM chips, where the three dominant suppliers — Samsung, Hynix and Micron — are reducing supply, said Shin Jinho, co-CEO of Midas International Asset Management. Another important part of He said that NAND chips are more fragmented in the memory market and will face a tough battle to survive.

“The NAND market is experiencing fierce competition and the recovery will follow one quarter after the DRAM market recovery,” Shin. “If the situation gets longer, eventually, we are going to see consolidation in the NAND market.”

During previous recessions, the memory industry was subject to mergers. one may be no exception. Western Digital Corp., and Kioxia Holdings Corp. NAND maker are making progress in their deal talksPeople familiar with this matter stated that the merger was announced in October. Still, the companies already manufacture jointly and thus a merger won’t necessarily lead to reduced output.

The longer-term question is when customers’ demand will bounce back. China’s recent exit from Covid-related restrictions could be one A catalyst for the sector, since gadget manufacturers will be in a position to restore manufacturing plants to their normal rhythms, stated Greg Roh, Head of Industry Relations. of technology research at HMC Investment & Securities.

“There will be pent-up demand for gadgets as well,” Roh stated. “Our view is that memory will recover in the second half.”

Get The Trust Factor weekly newsletter, which focuses on what leaders need in order to thrive. It will teach you how to build trust and navigate your company. Register here