Memory chips are rising in price, and the 55% increase is just the beginning, and this round may last for 2 years

Recently, the wave of price increases in the storage industry has intensified, and many institutions have given optimistic assessments. Relevant storage manufacturers have released outstanding results, and industry chain manufacturers have also shown optimism about the price increase trend of related products, which seems to indicate that the reversal of the storage market has arrived.

The downstream accelerated destocking, and the price of storage products ushered in an upward tide

In the past two years, affected by the sluggish consumer electronics market, the price of memory chips has been falling, and at the same time, the inventory of downstream manufacturers has remained high. However, this situation has eased recently, according to the latest report from Morgan Stanley, PC and smartphone manufacturers are actively building up memory chip inventories, and the price of memory chips is expected to rise sharply in the first quarter of next year.

In addition, according to TrendForce's data, DRAM and NAND prices are expected to increase by 18%-23% quarter-on-quarter in the first quarter of next year, compared with the previous expected increase of 8%-13% QoQ for DRAM prices and 5%-10% QoQ for NAND.

According to Korean media reports, Samsung Semiconductor plans to increase its investment in semiconductor equipment to 27 trillion won in 2024, a year-on-year increase of 25%, while SK hynix plans to invest 5.3 trillion won, a year-on-year increase of 100%. The main purpose of these two storage companies' increased investment is to increase the number of DDR5 and HBM-based equipment.

In addition, Samsung plans to increase DRAM and NAND products by 24% next year. SK hynix is also planning to expand its production capacity, focusing on high-end DRAM products such as HBM, and plans to increase DRAM production to the level before the end of last year, which was before SK hynix decided to reduce production.

The decision to increase mass production was mainly due to the increase in downstream demand. According to Da Mo's forecast, by 2024, the number of orders from Chinese smartphone OEMs will increase significantly. And some smartphone OEMs have begun to replenish stocks, and inventories have returned to normal levels.

The data shows that the current mobile DRAM inventory level is 4-6 weeks, and NAND is 6-7 weeks. And the ODM/OEM manufacturers on the PC side are also building up inventory.

According to the November results released by Phison, the main control chip factory in Taiwan, its consolidated revenue reached NT$5.407 billion, a monthly increase of nearly 5%, the second highest in the same period in history. Phison revealed that the total shipments of SSD control chips in November continued to recover, of which the total shipments of PCIe SSD control chips increased by nearly 40% year-on-year, hitting a record high.

Prior to this, many companies have announced the news of the price increase of memory products. For example, Western Digital, the world's fourth-largest NAND Flash supplier, recently issued a price increase notice to customers, saying that it will review the pricing of hard drive products every week, and the price is expected to increase in the first half of next year.

As for the NAND chip part, Western Digital expects prices to show a cyclical upward trend in the coming quarters, with a cumulative increase of 55% on the basis of current quotations.

Storage manufacturer ADATA also said that it is optimistic that memory prices will continue to develop positively next year, and believes that the current memory long market is just about to start. At the same time, the South Korean industry has also begun to raise its performance expectations for Samsung and SK hynix. Among them, SK hynix is expected to end its operating deficit for four consecutive quarters and achieve a profit of about 100 billion won in the fourth quarter, and Samsung Electronics is expected to turn a profit in the first quarter of next year.

Upstream shrinkage and production reduction, market demand reversed

If you look back at history, it will be clear that the storage market usually forms a 3-4 year fluctuation cycle, and the growth and decline of the storage market are alternating with each other. Not only storage, but also the global integrated circuit market segment cycle has similar volatility, but the memory chip market is more resilient.

From the perspective of time, the top of the growth rate of the storage market in 2021 will begin to appear, and the scale will begin to decline in 2022, and from the perspective of historical experience, 2024 is expected to usher in market recovery, which is basically consistent with the judgment of many storage companies.

And from the perspective of the entire storage industry, in the past few years, upstream manufacturers have begun to consciously reduce production and reduce capital expenditure. Taking Samsung as an example, in the third quarter of this year, in order to effectively alleviate the inventory pressure, mainly for DDR4 products with high inventory, Samsung decided to reduce production by 30% in the fourth quarter.

In the first half of this year, Samsung has reduced the production of DRAM chips by 20% and the production of NAND flash memory chips by 30%. Major storage manufacturers, including SK hynix and Micron, have followed up with similar actions, which has accelerated the arrival of the bottom of the storage market.

At the same time, the data center market has seen strong growth this year, helping the market consume a large number of storage products. Micron CEO Merota said that storage product quotations will pick up next year, and the rally will continue into 2025, with strong demand from data centers helping to offset the slow recovery of the PC and smartphone markets.

According to the data released by Wanhua Yongming, driven by the two-wheel drive of market supply and demand, the scale of China's data center market continues to grow, and the market size of the mainland data center will be about 190 billion yuan in 2022, with an average annual compound growth rate of 30% in the past five years, and the market size is expected to reach 247 billion yuan in 2023.

And the mobile phone market is recovering, judging from the data released by the China Academy of Information and Communications Technology, in October 2023, the mobile phone shipments in the Chinese market will be 29.162 million units, a year-on-year increase of 19.7%. From January to October, the overall shipment of mobile phones in China's domestic market reached 230 million units, a year-on-year increase of 4.2%.

IDC predicts that China's PC market is expected to maintain a stable growth trend in the next five years due to the impact of AI PCs, and the total market size of desktops, laptops, and tablets will increase from 68 million units in 2023 to more than 80 million units in 2027, an increase of nearly 18%.

In addition, SEMI data shows that global storage-related capital expenditures saw the largest decline in 2023 and are expected to resume growth in 2024. The NAND equipment market is expected to reach $10.7 billion in 2024, a year-on-year increase of 21%, and the growth rate is expected to increase to 51% in 2025, with a market size of $16.2 billion.

The DRAM market is relatively stable, expected to grow by 3% in 2024, and due to further process declines and HBM demand, DRAM equipment sales may reach $15.5 billion in 2025, up 20% year-on-year.

Previously, Micron said that the demand for DRAM for AI servers is 8 times higher than that of traditional general-purpose servers, and the demand for NAND is 3 times higher, and it is expected that AI PCs and AI mobile phones will also bring greater demand for memory and storage. According to a report from some institutions, the current trend of module price increases has strong certainty, and it is expected to start an upward cycle in 2024.

According to Gartner, the global semiconductor market will reach $624 billion in 2024, a year-on-year increase of 16.8%. Among them, the biggest growth driver comes from memory chips, which are expected to grow by 66.3% in 2024. According to Yole's data, memory chips are expected to start to recover in the fourth quarter of this year, and the storage market in 24-25 will be dominated by insufficient supply and rising prices due to suppliers actively reducing production.

summary

From the perspective of the cycle of the storage market, it is currently in the bottom area, and the shutdown and inventory of upstream enterprises, coupled with the increase in demand for data centers, smartphones, AI PCs and other products in the market, have allowed the inventory of memory chips to be quickly consumed. At present, many downstream manufacturers have begun to re-establish inventory, and the price of memory products is also steadily increasing. The upward cycle of the memory market may have quietly arrived.