AI demand boosts Korean memory chip industry recovery

This recovery follows a severe downturn in 2023.

The Korean memory chip industry's revenue growth is poised to surpass previous cycles, fuelled by increasing demand for AI servers and consumer electronics, according to Fitch Ratings. 

This recovery follows a severe downturn in 2023 caused by inventory gluts, weak demand, and geopolitical tensions.

The agency noted that whilst heightened demand will improve the operating performance and financial flexibility of memory chip manufacturers, the deep cyclicality remains a constraint on their credit profiles in the short term.

AI server demand is a key driver, as major cloud service providers allocate significant budgets to AI servers. However, the adoption of high-bandwidth memory in AI servers has limited spending on conventional products, restricting overall supply. 

This, combined with recovering server demand, is pushing up dynamic random access memory (DRAM) prices.

The agency also expects moderate growth in computer and smartphone shipments this year, with a stronger recovery projected for 2025, driven by the end of Windows 10 support and the introduction of AI features in upcoming products.

The DRAM sector, led by Samsung and SK hynix, is experiencing a significant upcycle, with rising demand pushing prices higher since mid-2023. 

Operating cash generation improved in the first half of 2024, enhancing financial stability. Fitch Ratings expects these trends to improve revenue visibility and help balance investment with cash generation throughout the cycle.