(The following was released by the rating agency)
SYDNEY/SEOUL, February 12 (Fitch) Fitch Ratings believes
that the DRAM and NAND memory semiconductor markets are likely
to turn more favourable for manufactures in 2013, based on
improving market dynamics and stronger profitability from both
SK Hynix (Hynix, 'BB'/Stable) and Samsung Electronics (SEC,
Fitch expects the credit profile of Hynix and SEC to remain
commensurate with their current rating levels in the short- to
medium-term. DRAM market dynamics are favouring major
manufacturers notwithstanding the prospect of weak PC growth
continuing in 2013.
The PC DRAM market has effectively consolidated down to
three major players - SEC, Hynix, and Micron Technology, Inc.
(Micron). Micron took over Japan's Elpida Memory, Inc. in 2012,
and Taiwanese makers, such as Inotera Memories, Inc. and Nanya
Technology Corporation, are gradually exiting the PC DRAM market
and focusing on either foundry or specialty DRAM to cut losses.
In addition, the pace of process migration has slowed notably
due to technological difficulties, and this will limit supply
Therefore, the remaining players will have more bargaining
power in 2013 and contribute to a tighter supply than in 2012.
Demand for mobile DRAM is likely to remain strong due to growing
demand for smartphones, and demand for server DRAM is likely to
be fuelled by burgeoning growth in cloud computing. At the same
time, downward adjustments to production levels including lower
capex have contributed to an improved supply/demand balance
since late 2012.
This trend is likely to continue in 2013. Fitch expects
demand for NAND memory chips to remain strong in 2013, driven by
growth in sales of smartphones and tablets. In addition, rising
penetration of Ultrabooks is likely to create stronger demand
for solid state drives compared with 2012. A significant
oversupply caused NAND prices to fall substantially during H112
and resulted in NAND manufacturers scaling back their production
levels during H212. Fitch expects chip makers to maintain a
cautious approach to supply control in 2013.
Moreover, as industy capex is likely to fall in 2013, the
extent to which NAND prices may fall in 2013 is likely to be
more modest than in 2012.
The market will remain largely dominated by SEC (38% market
share in 2012) and Toshiba (28%) as the first tier players,
followed by Micron (14%), Hynix (12%) and Intel (8%) as the
second tier players. Hynix's operating profit turnaround in Q412
further underlines the potential for the DRAM and NAND memory
sectors to perform better in 2013. The company reported q-o-q
12% revenue growth (Q312: -8% q-o-q; 2012: -2% y-o-y) and a 2%
EBIT margin (Q312: -1%; 2012: -2%). Likewise the performance of
SEC's semiconductor segment in Q412 suggests a more favourable
outlook, with q-o-q revenue growth of 10% (Q312: 1% q-o-q; 2012:
-6% y-o-y) and EBIT margins of 15% (Q312 and 2012: 12%).