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Large memory chip factories collectively “overwinter”

 

The leading manufacturers of memory chips are working hard to overcome the cold winter. Samsung Electronics, SK Hynix and Micron are reducing production, coping with inventory problems, saving capital expenditure, and delaying the progress of advanced technology to cope with the weak demand for memory. “We are in a period of declining profitability”. On October 27, Samsung Electronics told investors at the third quarter financial report meeting that, in addition, the company’s inventory increased rapidly in the third quarter.

 

Memory is the highest branch of the semiconductor market, with a market space of about 160 billion dollars in 2021. It can also be seen everywhere in electronic products. It is a standardized product that has developed very mature in the international market. The industry has obvious periodicity with changes in inventory, demand, and capacity. The production and profitability of manufacturers change dramatically with the cyclical fluctuations of the industry.

 

According to the research of TrendForce Jibang Consulting, the growth rate of the NAND market in 2022 will be only 23.2%, which is the lowest growth rate in recent 8 years; The growth rate of memory (DRAM) is only 19%, and is expected to further decline to 14.1% in 2023.

 

Jeffrey Mathews, senior analyst of mobile phone component technology services at Strategy Analytics, told reporters that the market oversupply has strongly driven the downward cycle, which is also the main reason for the low prices of DRAM and NAND. In 2021, manufacturers will be optimistic about production expansion. NAND and DRAM will still be in short supply. As the demand side starts to decline in 2022, the market will become oversupply. Another SK Hynix said in its third quarter financial report that the demand for DRAM and NAND products was sluggish, and both sales and prices declined.

 

Sravan Kundojjala, director of mobile phone component technical services of Strategy Analytics, told reporters that the last recession occurred in 2019, when the revenue and capital expenditure of all memory plants declined significantly, and the weak market lasted two quarters before bottoming out. There are some similarities between 2022 and 2019, but this time the adjustment seems to be more drastic.

 

Jeffrey Mathews said that this cycle was also affected by low demand, economic downturn and geopolitical tensions. The demand for smartphones and PCs, the two main drivers of memory for many years, is significantly weak and is expected to last until 2023.

 

Samsung Electronics said that for mobile devices, demand is likely to remain weak and slow in the first half of next year, and consumer confidence will remain low under the influence of seasonal weakness. For PC, the inventory accumulated due to low sales will be exhausted in the first half of next year, and it is likely to see a substantial recovery in demand. The company will continue to focus on whether the macro-economy can stabilize in the second half of next year and the signs of industrial recovery.

 

Sravan Kundojjala said that data center, automobile, industry, artificial intelligence and network fields provide memory providers with higher future growth. Micron, SK Hynix and Samsung Electronics all mentioned the emergence of some new drivers in the third quarter’s financial reports: data centers and servers will become the next strong driving force in the memory market.

 

High inventory

 

A basic electronic device includes the following systems, sensors, processors, memories and actuators. The memory is responsible for the function of information memory, which can be divided into memory (DRAM) and flash memory (NAND) according to the product type. The common product form of DRAM is mainly memory module. Flash can be seen everywhere in life, including microSD card, U disk, SSD (solid state disk), etc.

 

The memory market is highly concentrated. According to the World Semiconductor Trade Statistics Organization (WSTS) data, Samsung, Micron and SK Hynix together account for about 94% of the DRAM market. In the NAND Flash field, Samsung, Armour Man, SK Hynix, Western Digital, Micron and Intel together account for about 98%.

 

According to TrendForce Jibang consulting data, DRAM prices have fallen all the way since the beginning of the year, and the contract price in the second half of 2022 will fall more than 10% every quarter. NAND’s pricing is also further reduced. In the third quarter, the decrease was increased from 15-20% to 30-35%.

 

On October 27, Samsung Electronics released its third quarter results, which showed that the semiconductor (DS) department responsible for the chip business had a revenue of 23.02 trillion won in the third quarter, lower than analysts’ expectations. The revenue of the department responsible for storage business was 15.23 trillion won, down 28% month on month and 27% year on year. Samsung Electronics includes semiconductors, home appliances, panels and smartphones.

 

The company said that the weakness of memory masked the rising trend of the overall performance. The overall gross profit margin decreased by 2.7%, and the operating profit margin also decreased by 4.1 percentage points to 14.1%.

 

On October 26, SK Hynix’s revenue in the third quarter was 10.98 trillion won, and its operating profit was 1.66 trillion won, with sales and operating profit falling 20.5% and 60.5% month on month respectively. On September 29, Micron, another large factory, released its financial report for the fourth quarter of 2022 (June August 2022). Its revenue was only US $6.64 billion, down 23% month on month and 20% year on year.

 

Samsung Electronics said that the main reasons for the weak demand are the current persistent macro problems and the inventory adjustment customers are experiencing, which is larger than expected. The company realized that the market was worried about its high inventory level due to the weakness of memory products.

 

Samsung Electronics said it was trying to manage its inventory to a balanced level. Moreover, the current inventory level can no longer be judged by the past standards, because customers are experiencing a round of inventory adjustment, and the adjustment range has exceeded expectations.

 

Jeffrey Mathews said that in the past, driven by the periodicity of the storage market, manufacturers rushed to meet the recovery of demand and expand output. With the reduction of customer demand, the supply was gradually excessive. Now they are dealing with their inventory problems.

 

Meguiar Light said that almost all major customers in the end market are making inventory adjustments. Sravan Kundojjala told reporters that at present, some suppliers are signing long-term agreements with customers, hoping to reduce the finished products in the inventory, and are also trying to make the inventory replaceable to balance any changes in demand.

 

Conservative strategy

 

“We have always emphasized cost optimization to make the cost structure far superior to any competitor, which is a way to ensure stable profitability at present”. Samsung Electronics believes that products have price elasticity, which can be used to artificially create some demand. Of course, the effect is very limited, and the overall price trend is still uncontrollable.

 

SK Hynix said at the third quarter financial report meeting that in order to optimize costs, the company tried to improve the sales ratio and yield of new products in the third quarter, but the sharp price reduction exceeded the reduced costs, and the operating profit also declined.

 

According to TrendForce Jibang consulting data, the memory output of Samsung Electronics, SK Hynix and Micron has only maintained a 12-13% growth this year. In 2023, the output of Samsung Electronics will decrease by 8%, SK Hynix by 6.6%, and Micron by 4.3%

 

Large factories are cautious in capital expenditure and production expansion. SK Hynix said that next year’s capital expenditure will decrease by more than 50% year on year, and this year’s investment is expected to be about 10-20 trillion won. Micron also said it would significantly reduce its capital expenditure in fiscal year 2023 and reduce the utilization rate of manufacturing plants.

 

TrendForce Jibang Consulting said that in terms of memory, compared with Samsung Electronics’ Q4 2023 and Q4 2022 investment plans, only 40000 pieces will be added in the middle; SK Hynix added 20,000 films, while Meguiar was more moderate, with only 5000 more films. In addition, the manufacturers were originally building new memory plants. At present, the progress of the plants is advancing, but the overall trend is deferred.

 

Samsung Electronics is relatively optimistic about production expansion. The company said that it will continue to maintain an appropriate level of infrastructure investment to cope with medium – and long-term demand, but its investment in equipment will be more flexible. Although the current market demand is shrinking, the company needs to prepare for demand recovery in the medium and long term from a strategic perspective, so the company will not artificially reduce production to meet the short-term supply and demand balance.

 

Jeffrey Mathews said that the reduction of expenditure and output will also affect the research and development of advanced technology of manufacturers, and the speed of climbing to advanced nodes will be slower, so the reduction of bit cost (bit cost) will also be slowed.

 

Looking forward to next year

 

Different manufacturers define the memory market differently. According to the terminal division, the three driving forces of memory are smart phones, PCs and servers.

 

TrendForce Jibang Consulting predicts that the share of the memory market from servers will grow to 36% in 2023, close to the share of mobile phones. The mobile memory used for mobile phones has less upward space, which may be reduced from the original 38.5% to 37.3%. Consumer electronics in the flash memory market will be relatively weak, with smart phones growing by 2.8% and laptops dropping by 8-9%.

 

Liu Jiahao, research manager of Jibang Consulting, said at the “2022 Jibang Consulting Semiconductor Summit and Storage Industry Summit” on October 12 that the development of memory can be divided into several important driving forces, driven by laptops from 2008 to 2011; In 2012, with the popularity of smart devices such as mobile phones and tablets, and driven by the Internet, these devices replaced laptops as the main driving force to pull memory; In the period 2016-2019, Internet applications have further expanded, servers and data centers have become more important as digital infrastructure, and storage has begun to have a new impetus.

 

Jeffrey Mathews said that the last round of memory recession occurred in 2019, because the demand for smartphones, the largest terminal market, declined. At that time, the supply chain accumulated a large amount of inventory, the demand of smart phone manufacturers declined, and the NAND and DRAM ASP (average selling price) for smart phones also experienced a double-digit decline.

 

Liu Jiahao said that during the period from 2020 to 2022, the epidemic situation, digital transformation, consumer electronics weakness and other variable factors appeared, and the industry’s demand for high-intensity computing was stronger than in the past. More Internet and IT manufacturers have laid out data centers, which has also driven the gradual development of digitalization to the cloud. The demand for storage for servers will be more clear. Although the current market share is still small, the data center and servers will become the key drivers of the storage market in the medium and long term.

 

Samsung Electronics will add products for servers and data centers in 2023. Samsung Electronics said that, considering the investment in key infrastructure such as AI and 5G, the demand for DRAM products from servers will remain stable next year.

 

Sravan Kundojjala said that most suppliers want to reduce their focus on the PC and smartphone markets. At the same time, data center, automobile, industry, artificial intelligence and network fields provide them with growth opportunities.

 

Jeffrey Mathews said that due to the continuous progress of memory technology towards advanced nodes, the performance of NAND and DRAM products is expected to achieve the next generation leap. It is expected that the demand of key end markets such as data center, equipment and edge computing will grow strongly, so suppliers are driving their memory product portfolio. In the long run, it is hoped that memory providers will be cautious in capacity expansion and maintain stricter supply and pricing discipline.


Post time: Nov-05-2022


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