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In the early hours of this morning, there were continuous earthquakes in Hualien County, eastern Taiwan, China, with a maximum intensity of 6.3 and an epicenter depth of 10 kilometers. Taiwan plays an important role in the global semiconductor supply chain, accounting for 69% of the world's supply of advanced processes below 10nm. The heavy damage caused by the earthquake made local memory chip manufacturers have to stop work for maintenance and debugging equipment, which affects shipments, and many manufacturers have issued price increase notices to customers. The aftershocks may once again affect the storage capacity of local chip manufacturers that have just recovered from the last earthquake, so that the industry will usher in a new round of price increases......
In the past two years, storage manufacturers around the world have experienced a "darkest moment" - rising costs, price cuts, and inventory backlogs, resulting in huge losses for companies such as Samsung and SK hynix. One of the results of the loss is that the major storage factories have reduced their capital investment and reduced production capacity, and when the tightened capacity is unable to cope with the continuous rise in demand, price increases are unavoidable.
The storage industry has a strong cyclicality, with a fluctuation cycle of about 3~4 years, and this round of price fluctuations is also a specific manifestation of the cyclical nature of the storage industry. According to WSTS data, from 2004 to the present, the global memory chip industry has experienced a total of 5 cycles, and is currently at the starting point of the 6th cycle. From the perspective of market size growth, there were peaks in 2006, 2010, 2014, 2017 and 2021, with growth rates of 20.6%, 55.4%, 18.2%, 61.5% and 28.8% respectively. The main driving factors affecting the upward trend of the cycle in history are the explosion of terminal sales, the application of new technologies, the merger of wafer fabs, production reductions, and insufficient production capacity. Downside factors include overcapacity, the impact of the international economic situation and weak demand.
Now a new round of the upward cycle of the storage industry is coming.
The original factory, the big factory, the price has risen one after another!
The upward cycle of the storage market is coming in 2024, and the research institution Gartner previously reported that the demand for memory chips will recover strongly in 2024, and the revenue is expected to soar by 66.3%. The prediction soon became a reality, and many "bigwigs" in the storage industry announced price increases:
Samsung: According to a report by BusinessKorea, Samsung intends to raise the price of enterprise SSDs by 20%-25% in the second quarter, aiming to reverse the downward trend since 2023. Initially, Samsung planned to raise prices by about 15% from the previous quarter. However, due to higher-than-expected demand, Samsung decided to expand the price increase.
Micron: On April 9, according to Taiwan media reports, market sources revealed that semiconductor giant Micron has proposed to most customers to raise the price of products in the second quarter, an increase of more than 20%.
Western Digital: On April 10, Western Digital said it had experienced a supply shortage of its mechanical hard disk drives (HDDs) and solid-state drives (SSDs). Demand for flash memory products has also exceeded expectations, so pricing for flash and hard drive products will continue to be adjusted during the quarter, with some of these changes effective immediately.
Seagate: Seagate Technology, a major manufacturer of mechanical hard drives, also recently issued a price increase letter to customers, announcing that it will immediately increase the price of new orders and demand beyond the previously promised quantity.
At the beginning of 2024, the price of NAND flash memory has started to continue to rise, with an overall increase of 23-28% in the first quarter and an expected increase of 13-18% in the second quarter, which is reflected in the terminal SSD market, and the price of some products has even doubled. In addition, there have been frequent reports of enterprise SSD shortages in the past two weeks, and TrendForce believes that enterprise SSD purchases are expected to increase sequentially in the first half of this year, benefiting from the growing demand from communications service providers in North America and China.
In addition to the supply side, the increase in demand for memory chips on the demand side has further pushed the supply and demand curve into a seller's market, after Nvidia CEO Jensen Huang hinted at the media conference at the NVIDIA GTC 2024 event that Nvidia intends to purchase Samsung's HBM chips. Subsequently, Korean media broke the news that Nvidia will buy a large number of Samsung's flash memory products from September at the earliest, which will bring stronger growth momentum to the performance of Samsung Electronics in the future.
Led by AI, the demand for enterprise-class SSDs has recovered strongly
What is certain is that 2024 will be a turning point for the recovery of the storage industry. Affected by factors such as the epidemic and economic instability, the global consumer electronics market has experienced a two-year decline. With the vigorous development of artificial intelligence, the popularization of generative AI, and the wide application of AI technology in PCs and mobile phones, AI PCs and AI mobile phones have also ushered in a new round of outbreaks.
In addition, the rapid development of artificial intelligence technology has also driven the explosive growth of storage performance requirements. This change will also help the transformation and upgrading of the entire industry. Citi analysts pointed out that SSDs will become part of AI and may replace HDDs for AI. Because SSDs are more suitable for AI training applications, they are up to 40 times faster than HDDs. The data centers of the top U.S. tech companies are moving from HDDs to enterprise-class SSDs. This trend has also dramatically increased the demand for storage devices, leading to a tight supply of SSDs.
At a time of significant increased demand, some buyers are trying to increase inventory levels ahead of the peak season in the second half of the year, and enterprise SSD contract prices are expected to rise by 20%-25% in the second quarter. According to industry analysis, the purchase volume of enterprise SSDs is expected to grow quarter-on-quarter in the first half of 2024, benefiting from the rising demand from cloud service providers (CSPs) in North America and China. It is estimated that the contract price of enterprise-grade SSD will increase by 20~25% in the second quarter of this year, which is the highest increase among all products. In the second quarter, consumer SSDs are expected to increase by 10~15%.
From the perspective of the global market, companies in the United States, Japan, South Korea and other countries have first-mover advantages in the field of SSD, whether it is production capacity, ecology or sales system, and the market share of localized products is low. In recent years, although local manufacturers have actively focused on enterprise-level SSDs, due to the relatively concentrated SSD pattern, several international storage giants still have a high right to speak. Therefore, with the rise in global memory chip prices and the continuous increase in the pressure on the semiconductor supply chain, the cost of domestic SSDs will also passively follow the international market and rise.
Looking back at the development of the storage industry in recent years, it can be seen that semiconductor companies around the world, including China, have experienced a series of severe tests, whether it is due to the supply-demand-price cycle, the impact of earthquakes or the instability of the international supply chain. But these have also increased the incentive for China's memory chip makers to improve their processes and innovate to better adapt to a changing market. It is hoped that Taiwan's semiconductor industry will recover from the trauma of the earthquake as soon as possible, and that the storage industry will flourish in a new round of upward cycle.