From computing power to storage power, the opportunities and challenges of Chinese storage enterprises under the general trend of artificial intelligence

Thanks to the rapid development of emerging technologies such as artificial intelligence, the Internet of Things and cloud computing, China's data is ushering in explosive growth, the importance of computing power in economic development is becoming increasingly prominent, and storage power is regarded as the cornerstone of computing power.

The recent "Micron incident" has once again pushed memory chips into the spotlight, which has attracted widespread attention from Chinese storage companies. In the current era, Chinese storage enterprises are facing great challenges, but at the same time, they are also ushering in excellent development opportunities.

According to the "2021-2022 Global Computing Power Index Evaluation Report" jointly released by international data companies IDC, Inspur Information, and the Global Industry Research Institute of Tsinghua University, including 15 key countries such as the United States and China, the improvement of the computing power index has a significant impact on the growth of the national digital economy and GDP. Specifically, for every 1 hashrate index point increase, the country's digital economy will grow by 3.5‰ and gross domestic product (GDP) will increase by 1.8‰. As the data cornerstone of high-quality development, strong storage capacity can support large-scale information systems and applications, and promote the healthy development of the digital economy.

01 "Micron Incident"

The Micron incident thrust memory chips into the spotlight. In May 2023, the Cyberspace Administration of China announced the results of a security review of Micron Technology. The announcement pointed out that Micron's products have serious cybersecurity problems, which have caused major security risks in China's critical information infrastructure supply chain and have an impact on national security. Based on the provisions of laws and regulations such as the Cybersecurity Law, operators of domestic critical information infrastructure are required to stop purchasing Micron's products.

As a leading player in the U.S. memory chip industry and one of the global memory chip giants, Micron Technology's revenue in Chinese mainland will be approximately $3.3 billion in 2022. At its peak, especially in 2018, Micron's revenue in Chinese mainland accounted for 57%.

02 Status of global memory chip manufacturers

At present, the memory chip industry has a small number of competitors in the world, a high degree of industry concentration, and the competition in the technology field is very fierce, and most of the market is monopolized by foreign oligopolies, resulting in the relative backwardness of domestic enterprises. However, after more than 30 years of trial and error, catching up and persistence, Chinese memory chip companies have gradually gained a place.

In the global memory chip market, it is mainly monopolized by overseas companies. In the field of DRAM (Dynamic Random Access Memory, commonly used in computer memory), Samsung, Micron and SK Hynix have almost monopolized 95% of the market. In the field of NAND Flash (data-based flash memory chips, common products such as flash drives, solid-state drives, etc.), the competitive landscape is relatively scattered, but it is still headed by Samsung, Kioxia, Western Digital and other companies, and 95% of the market share (CR6) is occupied by these companies. In contrast, NOR Flash (code-based flash memory chips, commonly used in automotive electronics, Internet of Things, and wearable devices) is the field with the lowest degree of monopoly by overseas companies. In the field of NOR, there are relatively many domestic manufacturers, and Taiwanese companies Wanghong Electronics, Winbond and Chinese mainland GigaDevice have ranked among the top three in the world in terms of market share in the past five years, and the total market share of these three companies will reach 90.7% in 2022.

Since the 90s of last century, China's memory chip companies have been trying to catch up, and a number of representative enterprises have emerged, such as Changjiang Storage, Hefei Changxin, GigaDevice Innovation and Dongxin Semiconductor. They led the domestic memory chip industry to achieve a breakthrough from scratch, breaking the long-term monopoly of the memory chip industry by the West, and creating a new situation of domestic storage.

In the 90s, NEC (Electric Corporation of Japan) cooperated with Shougang and Hua Hong to establish two joint ventures in Chinese mainland to produce DRAM. Although NEC's DRAM joint venture project in China ultimately failed, it produced the first batch of semiconductor memory manufacturing talents for China.

In 2005, Chiptech Jiayi (the predecessor of GigaDevice Innovation) was established, and initially started with SRAM. In May 2008, GigaDevice designed and launched the first 8M SPI NOR Flash chip in China. At present, GigaDevice ranks first in the market share of NOR Flash in the Chinese market and ranks among the top three in the global market. The cumulative shipment exceeded 19 billion units, and the annual shipment exceeded 2.8 billion.

In 2006, Wuhan Xinxin was established, which originally planned to produce DRAM, but suffered a global DRAM price crash. Subsequently, they decisively switched to NOR flash products. In September 2008, Wuhan Xinxin cooperated with Spansion, and Flycord Semiconductor transferred 65nm, 43nm, 32nm related production processes and technologies to Wuhan Xinxin, making Wuhan Xinxin an important production base of Zipwire Semiconductor and providing foundry for NOR Flash products.

In 2016, Hefei Changxin was established by Hefei Industry and Investment Corporation, focusing on DRAM. In 2018, Hefei Changxin built Chinese mainland first 12-inch DRAM production plant.

In 2016, Changjiang Storage was established, its first NAND Flash production line was built in Wuhan, and the No. 1 plant was topped out in September 2017. In September 2019, YMTC announced the start of production of the 64-layer 256GB TLC 3D NAND Flash. In April 2020, YMTC announced that its 128-layer QLC 3D flash memory (X2-6070) has made a major breakthrough, and has passed the verification of terminal products such as SSDs from a number of master manufacturers. According to multiple reports, in 2022, Changjiang Storage has successfully mass-produced 232-layer 3D NAND Flash products.

03 China's storage market has broad prospects

——China's storage market has a large space

China is ushering in an era of explosive data growth, which is driving storage devices to occupy an increasingly important position in data center procurement. According to IDC's forecast, China's datasphere is expected to grow to 48.6 zettabytes by 2025, accounting for 27.8% of the global datasphere, making it the world's largest datasphere.

At present, China is in a critical stage of digital transformation, and all walks of life are actively accelerating the digitalization process. This will bring a large number of data storage needs, covering areas such as enterprise data centers, cloud storage, and edge computing. Storage companies in China can take advantage of this huge market opportunity to provide high-performance, high-reliability storage solutions to meet the growing demand for digitalization.

The rapid development of artificial intelligence is driving the demand for storage

With the rapid development of artificial intelligence, the increase in storage demand has become a trend that cannot be ignored. AI applications require more storage capacity than traditional conventional servers. According to statistics, the DRAM and NAND flash memory capacity required by AI servers is 8 times and 3 times that of conventional servers, respectively.

AI applications require large amounts of data to train and learn to provide accurate predictions and decision-making capabilities. As the complexity of AI algorithms and models continues to increase, so does the demand for data in the training and inference phases. This means that the storage system must have enough capacity to store massive amounts of training data and model parameters to support the high-performance operation of AI applications.

04 Challenges for Chinese storage companies

——The market share is still low

Despite some progress by storage companies in China, their market share in the overall storage market is still relatively low. At present, the storage market is mainly monopolized by overseas companies, except in the field of NOR Flash, the market share of Chinese companies is relatively small. Taking Changjiang Storage as an example, its global market share was only about 6% by the end of 2022.

However, with the rapid development of the Internet of Things, smart cars, intelligent manufacturing and other fields, the memory chip market is expected to expand further. This also provides a window of opportunity for domestic storage companies to expand market share and expand competitive advantage. With the vigorous development of these emerging fields, the demand for memory chips will continue to increase, and domestic storage companies can meet market demand and strive for more market share with the help of technological innovation and product upgrading.

- Insufficient production capacity

Compared with overseas memory chip companies, one of the main challenges faced by domestic memory chip companies is insufficient production capacity. Hefei Changxin expects to reach a monthly production capacity of 120,000 wafers by the end of 2023, while Changjiang Storage expects a total production capacity of about 200,000 to 300,000 wafers per month in 2023.

According to the global wafer capacity report released by Knometa Research, a semiconductor industry research institution, in March 2023, by the end of 2022, the advanced process capacity of three memory chip companies, including Samsung, Micron and SK Hynix, accounted for 76%. According to the 2021 production capacity data released by the agency, Samsung Electronics has a wafer production capacity of 4.05 million wafers / month, Micron has 2.054 million wafers / month, and SK Hynix has 1.982 million wafers / month.

Despite the great efforts made by local storage companies in China to catch up, they still face a series of challenges, including low market share and insufficient production capacity. These challenges are exacerbated especially in the current environment of insufficient consumption and sluggish markets. Chinese storage companies also need to continuously improve their technical capabilities and innovation capabilities to adapt to market changes and technological progress.

Bibliography:

1. Data Storage White Paper, Huawei

2. "Micron "banned" domestic memory chip supply and demand pattern reshape" Economic Observer

3. "Optimistic about investment opportunities under the expectation of recovery of the domestic storage industry" CITIC Securities

4. "Memory Chip Industry Special Report: From Computing Power to Storage Power" Zheshang Securities

5. "Can the Kioxia merger and acquisition case land?" Is NAND back down the path of DRAM oligopoly? Tou Leopard Research Institute

6. What are the challenges and opportunities facing the storage industry? 》Sina Finance

7. "2021-2022 Global Computing Power Index Evaluation Report" IDC, Inspur Information, Tsinghua University Global Industry Research Institute

Risk Warning

The views are for informational purposes only and do not constitute investment advice or commitment. The market is risky, and investment needs to be cautious.