The memory chip market is ushering in a turnaround

Economic Observer reporter Zheng Chenye The memory chip market, which has been "water reversal" for a long time, is ushering in an inflection point.

Since November, a number of memory chip concept stocks have continued to strengthen. After disclosing that the memory chips produced by the subsidiary had been delivered in small batches, Xiechuang Data (300857. SZ) soared from 27.6 yuan/share to 55.42 yuan/share during the month, an increase of 100.65%; Yawei Co., Ltd. (002559.SZ), a wholly-owned acquisition of South Korea's GSI company to enter the memory chip testing business, also soared 59.63% in the month; the product line covers SSD solid state drives, DRAM memory modules, embedded storage mobile storage No. 1 stock, Langke Technology (300042. SZ) also rose 45.36% in November.

Behind the recovery of the stock prices of related companies, the prices of memory chips, which had been "falling endlessly", began to rise sharply in the fourth quarter of this year. According to CFM Flash Markets, a well-known consulting firm in the industry, the spot market NANDFlash price index has risen by 40% since October. The reporter also learned from some memory chip dealers in South China that the prices of solid-state drive products represented by Samsung, Western Digital and Kingston have rebounded significantly in recent months, and the recovery range is generally between 100 yuan and 130 yuan.

Some market views believe that this round of memory chip price "reversal" is the result of the mutual achievement of supply and demand in the typical industry. For chip manufacturers, after the industry has experienced a heavy blow in 2022, the storage giants represented by Samsung Electronics and SK hynix have experienced a considerable degree of performance decline or even loss, so "price increase" and "production reduction" have begun to become the consensus of various storage manufacturers.

In addition to the upstream companies that are firmly implementing the destocking strategy, the downstream consumer electronics market is also showing signs of recovery. According to IDC's survey data, from October 23 to November 3, 2023, the overall PC market (including e-commerce platforms, manufacturers' official websites, and offline traditional channels of notebook and desktop markets) sales increased by 1.4% year-on-year. In addition, the sales volume of the tablet market increased by 13.5% year-on-year, the sales volume of the mobile phone market increased by 10.2% year-on-year, the sales volume of the display market increased by 5.3% year-on-year, the sales volume of the smart watch (excluding children's watches) market increased by 23.6% year-on-year, and the sales volume of the bracelet market increased by 15.2% year-on-year.

IDC pointed out that during this year's "Double 11" period, the demand for PC, mobile phones, and tablets has exceeded expectations, which is also one of the main reasons for driving the overall smart terminal market.

CFM flash memory market analyst Sun Mengwei told reporters that from the perspective of supply and demand in the storage industry, although the current price of related products is still at the bottom of the range, it is not excluded that downstream individual channel providers will reduce prices slightly to stimulate shipments and increase cash flow, but this will not change the overall upward trend.

Vigorously destocking will eventually have an effect

Affected by sluggish terminal demand and high inventory in the industrial chain, the memory chip industry is experiencing a "historical" difficult period since 2022.

Samsung Electronics' third quarterly report shows that the company's memory chip business achieved revenue of 10.53 trillion won, a year-on-year decrease of 31% The semiconductor business unit (DS division), which includes the memory chip business, reported a net loss of 3.75 trillion won in the third quarter, SK hynix reported revenue of 9.0662 trillion won and an operating loss of 1.79 trillion won and a net loss of 2.19 trillion won in the third quarter of fiscal 2023, while Micron Technology reported revenue of $4.01 billion, down 39.64% year-on-year, with a net loss of $1.43 billion, according to data for the fourth quarter of fiscal 2023.

In the A-share market, the performance of major listed storage companies in the third quarter was not satisfactory. GigaDevice (603986. SH) achieved revenue of 4.394 billion yuan in the first three quarters of 2023, a year-on-year decrease of 35.08%, and a net profit attributable to the parent company of 434 million yuan, a year-on-year plunge of 79.27 688525%; SH) revenue in the first three quarters of 2023 was about 2.122 billion yuan, a year-on-year decrease of 2.88%, and the net loss attributable to the parent company was about 484 million yuan, while Longsys (301308.SZ) achieved revenue of 6.579 billion yuan in the first three quarters of 2023, a year-on-year decrease of 0.73%, and the net loss attributable to the parent company reached 883 million yuan.

"Samsung, SK hynix, Micron, Kioxia and Western Digital have a total loss, from a loss of $10 billion in Q1 to a loss of $8.5 billion in Q2 and then a loss of $6.5 billion in Q3, with a cumulative loss of $25 billion. Sun Mengwei pointed out.

Under the continuous loss, reversing the financial performance has become the "only" concern of major storage manufacturers.

Sun Mengwei told reporters that for the original storage factory, reducing production and controlling the release of production capacity is the fastest means to achieve a performance reversal. According to CFM flash memory market statistics, at present, the production reduction of NANDFlash of major storage manufacturers is about 30%-50%, especially for mature process products with a large production capacity, major factories are also cautious about capital expenditure and capacity release next year, and need to be flexibly adjusted according to inventory level and profitability.

"This downward cycle is the longest and largest decline in recent years, and it has also brought unprecedented operating pressure to the major original manufacturers. It is under such high pressure that the fiercely competitive storage manufacturers are in step with each other, and the strong production reduction and price increase are the great determination of the great pressure. Sun Mengwei said.

TrendForce analyst Ao Guofeng also told reporters that the main focus of the production cuts of major international memory manufacturers is to reduce the excess memory chip inventory in the market and prevent the price of memory chips from falling further. At present, this move has ushered in the effect in the fourth quarter, and flash memory chip products have rebounded across the board in this quarter.

In addition to adjusting production capacity and reducing inventory, storage giants that are unwilling to continue to make loss-making transactions have also begun to work together to increase prices.

Recently, there is market news that Samsung Electronics has signed procurement contracts with major customers, and will raise the contract price by 10%-25% in the fourth quarter, of which the most fierce price adjustment SSD products, the contract price increase of up to 30%, SK hynix also officially announced in October that it will increase the price of DRAM and NAND flash memory chips, and Micron Technology has also been exposed to follow up with the price adjustment.

The three major application markets "warmed up"

During Samsung Electronics' earnings call on October 31, the company's management noted that the demand environment has improved due to the growing popularity of high-density PC/mobile device products, the near-completion of customer inventory adjustments, and the continued strength of high-end AI-oriented products.

"After the general reduction in production in the industry, the market's awareness of the industry bottoming out has been expanding, and we have received a large number of purchase inquiries. With a continued focus on profitability, we continued to expand sales of advanced node products such as HBM/DDR5 and UFS4.0. For those traditional products with relatively high inventory levels, we reduce inventory by reducing production. Samsung Electronics executives noted in the earnings call.

Sun Mengwei told reporters that the three major application markets (server, Mobile, PC) in the second half of the year rebounded month-on-month, but the decline in storage prices also accelerated the growth of the average capacity of terminal equipment, bringing storage "sweet spot effect".

She pointed out that among the three major application markets, the demand for mobile phones is relatively clear at this stage, and the global mobile phone sales have picked up month-on-month.

"From the perspective of FCST of major mobile phone brand manufacturers, the sales volume in 2024 is expected to increase slightly compared with 2023, and the global smartphone shipments in 2023 are expected to be 1.15 billion units, the lowest point in recent years, but it is expected to resume growth to 1.2 billion units in 2024. At the same time, since the beginning of this year, the PC market has gradually improved its month-on-month demand, and the channel inventory has returned to the normal level, driven by the new processor platform and Windows updates, it will usher in a certain replacement demand next year, and it is expected that PC shipments in 2024 will recover from a decline of 14% in 2023 to an increase of 8%", Sun Mengwei said.

GigaDevice's management also pointed out in the third-quarter performance exchange meeting that with the effect of production reduction, supply and demand will reach a state of balance, and the price of large storage is expected to continue to rebound, but it is unlikely to rise and fall.

"Storage is divided into two major parts: large storage and niche storage. Large storage includes DRAM and 3DNand for mobile phones, PCs and servers, and the main suppliers are international leading manufacturers represented by Samsung. Large storage has experienced a downward cycle of about 6-7 quarters, and has reached the bottom range of prices in the third quarter of this year, and has reached a state of basic balance between supply and demand with the continuous reduction of production by major manufacturers. At the end of the third quarter of this year, there was some price rebound in large storage, which had a certain driving effect on niche storage, and the price of niche storage was also bottoming out and rebounding slightly. GigaDevice management analysis.

According to Wu Yating, Senior Vice President of Research at TrendForce, looking forward to 2024, the storage market will have the following three concerns: first, the inventory level of the original factory has begun to decline after the production cut, but it is still necessary to wait and see whether the inventory can continue to transfer to the buyer, second, the original factory production capacity is expected to increase slowly, and if the utilization rate is restored early due to the recovery of market conditions, the supply and demand will be imbalanced again, and third, whether the demand of each end can meet the expected recovery, of which the continuation of AI-related orders will be the focus.

However, at the same time, she also stressed to reporters that due to the lack of strong demand for real terminals, the continuation of the current rise in memory chips is still unclear, if the demand rebounds in the second half of 2024 as scheduled, especially the procurement momentum of server SSDs has increased, coupled with the fact that suppliers do not rush to restore capacity utilization and accelerate the balance between supply and demand, flash memory prices are expected to show a pattern of rising throughout the year.

A new breakthrough in domestic storage

Since the beginning of this year, domestic companies have made new breakthroughs in the two main memory chip categories (DRAM and NANDFlash).

On November 28, 2023, Changxin Storage officially announced the official launch of LPDDR5 series products, including 12Gb LPDDR5 particles, 12GBLPDDR5 chips in POP packaging and 6GBLPDDR5 chips in DSC packaging.

According to its official website, the company's self-developed and self-produced 12GBLPDDR5 chip has been verified on domestic mainstream mobile phone manufacturers Xiaomi, Transsion and other brand models. Changxin Storage pointed out that the launch of DDR5 products will further improve the company's product layout of DRAM (dynamic random access memory) chips.

In a research report published in September this year, Donghai Securities pointed out that in the second quarter of 2023, Samsung Electronics accounted for 38.14% of the global DRAM market revenue, SK hynix accounted for 32.29%, and Micron's market share also reached 25.03%, and the market was highly concentrated. The oligopoly pattern makes the bargaining power of domestic manufacturers for DRAM chips very low, and also makes DRAM chips one of the basic products in the mainland that are most seriously constrained by external constraints.

Therefore, after Changxin Storage launched the first domestic high-end DRAM product, some industry insiders told reporters that DDR5 is a high-performance memory for mobile phones and portable devices, compared with the previous version, it transmits data faster and consumes less power, and Changxin Storage has achieved a breakthrough in domestic LPDDR5 products from zero to one, which is a good thing for the current industrial chain that needs to be recovered.

In addition, in the field of NANDFlash, in September this year, the only retail storage brand under YMTC released a Ti600 solid state drive, which uses YMTC original QLC flash memory particles, based on self-developed architecture, with a sequential read speed of up to 7000MB/s and a variety of capacity options of 500GB/1TB/2TB.

Liu Shuwen, head of the Zhizhi product line of YMTC, said at the time that the performance and life of QLC flash memory chips have been continuously optimized, and solid-state drives with them as storage media have begun to enter the retail market. "NANDFlash technology is evolving into a form factor that can stack 200 or more layers, which means that storage devices can store more data. At the same time, DRAM memory technology is also advancing, creating chips that are smaller (less than 1β nanometers) and making them more efficient. At present, in these two fields, domestic manufacturers are attacking the status of industry technology leaders. Dai Xiaoyu, a flash memory market analyst at CFM, told reporters. However, some analysts also stressed to reporters that under the current situation of limited access to advanced process capacity and equipment, the future expansion of domestic memory chips with more than 200 layers of process capacity needs to be completed through technological breakthroughs by domestic semiconductor equipment manufacturers.

A semiconductor researcher at a large brokerage firm in Shanghai also told reporters that due to the late start of the domestic memory chip industry and the lack of technology accumulation, most domestic manufacturers are focusing on the niche market and competing with the three giants of storage The field of NANDFlash is gradually breaking through technical barriers, and domestic brands will continue to stir up the competitive landscape of the global memory chip market in the future.