Samsung/SK Hynix DRAM has significantly expanded production, returning to pre reduction levels and opening a new storage cycle

According to a research report by market research firm Omdia, as global demand recovers, South Korean memory chip manufacturers Samsung Electronics and SK Hynix increased their investment in DRAM wafers in the second quarter of this year, effectively ending production cuts.

Omdia pointed out in the report that Samsung Electronics has increased its average monthly DRAM wafer investment in the second quarter of this year to 600000 chips, a 13% increase compared to the previous quarter; It is expected that the input of DRAM wafers will increase to 660000 in the second half of the year, and DRAM production will return to the level before the reduction. SK Hynix will increase the average monthly DRAM wafer investment from 390000 in the first quarter to 410000 in the second quarter; It is expected that the company's DRAM wafer investment will increase to 450000 pieces in the second half of the year.

Meanwhile, memory and storage products have recently seen price increases. In terms of memory, Nihon Keizai Shimbun recently reported that as Chinese customers accepted the price increase requirements of memory chip manufacturers, the wholesale price of the target product DDR4 8Gb in January 2024 was about $1.85 per unit, up 9% month on month, and the price of 4Gb products was about $1.40 per unit, up 8% month on month. The prices rose for the third consecutive month.

The periodicity of storage products

As a bulk semiconductor component, the periodic effect of storage products is very obvious, and the intervention effect of the three major storage giants Samsung, SK Hynix, and Micron is very obvious.

There are many types of storage products, but generally speaking, storage products mainly refer to DRAM memory and Flash memory chips. According to WSTS data, the global memory market accounts for 23.17% of the semiconductor market. Since 2003, except for a few years where the proportion has exceeded 25% and reached 30%, the range of changes in this proportion in these years has been basically between 20% and 25%.

Due to its large proportion, storage products belong to the most volatile sub category in the cyclical nature of the semiconductor industry. At the top of the upward cycle, such as in 2010 and 2017, global storage product sales increased by 55% and 61% year-on-year. Of course, during the downward trend, storage products were not ambiguous. In 2019, sales experienced a 33% year-on-year decline.

Therefore, the volatility of storage products is very obvious, always in an upward or downward cycle. The reason for this situation is that storage products, as bulk semiconductor products, have a very high demand and standardization level, but the stickiness between them and market users is very low. In other words, in the storage market, consumers actually have a weak voice, and it is basically the top manufacturers who rely on capacity allocation to influence the cycle.

According to statistics from Zhongyuan Securities, in the past twenty years, the bottom cycles of storage products have been in 2002, 2008, 2011, 2015, 2019, and 2023, while the top cycles have been in 2004, 2010, 2014, 2017, and

2021, respectively. It is not difficult to see from this that we are currently in an upward cycle of global storage products, and it is expected that the top of the next industry cycle will appear in 2025.
So, as in previous cycles, storage vendors will not only significantly increase their product capacity during the upward cycle, but also try to raise prices as much as possible, in order to obtain the maximum benefits throughout the entire upward cycle.Behind the simultaneous increase in quantity and price

At the CFMS | MemoryS 2024 summit, Tai Wei, General Manager of Shenzhen Flash Memory Market Information Co., Ltd., predicted that "this year, the storage market is returning to the right track, and storage prices are showing a steady upward trend. Coupled with the application of advanced technology and emerging markets, the storage industry is entering a 'value' cycle from 'price'. We expect the market size to increase by more than 42% year-on-year this year."

In this value cycle, the simultaneous increase in volume and price of storage products is expected to create a significant increase in value. We already mentioned some information at the beginning of our article, let's take a closer look. In the first half of 2023, storage giants such as Samsung and SK Hynix faced enormous industrial pressure. Due to insufficient capacity utilization, Samsung

Electronics' Device Solutions (DS) division, responsible for chip business, experienced a massive operating loss of 458 trillion Korean won (approximately 3.4 billion US dollars), marking the first time in over a decade. Similarly, SK Hynix's performance is also under pressure, with a net loss of approximately KRW 2.59 trillion (approximately USD 1.9 billion) in the first quarter of 2023. In that quarter, SK Hynix's operating loss reached KRW 3.40 trillion, setting a record for the company's quarterly operating loss.

Under immense pressure of losses, Samsung, SK Hynix, and Micron finally announced production cuts to the public in April 2023, and the scale of production cuts gradually increased month by month. By July 2023, Samsung Electronics stated that considering the increasing reduction in production in the storage chip industry, it is expected that the storage chip market will gradually stabilize, and customer inventory adjustments may gradually come to an end. Subsequently, the global storage industry gradually entered a stage of supply shortage, and prices began to rise.
As mentioned above, in this cycle, the increase in DDR memory is around 10%. According to a report from Jibang Consulting, the growth of NAND flash memory and SSD solid-state drives is even more rapid. The data in the relevant report indicates that in the first quarter of 2024, the global NAND flash memory market is estimated to increase by about 23% -28% in price, with 3D flash wafers, consumer grade SSDs, and enterprise grade SSDs all increasing by 23% -28%, and eMMC/USF increasing by 25% -30%. The report predicts that as we enter the second quarter, there is still 13% -18% room for price increases in the global flash memory market.

For 2024, Samsung, SK Hynix, and Micron all expressed optimistic attitudes. Samsung Electronics stated that its storage business will continue to recover throughout 2024, with an increase in single device storage capacity for consumer electronics, an expansion in AI investment, and a gradual recovery in server demand being the main driving forces. SK Hynix pointed out that the company will focus on mass production of AI memory HBM3E and research and development of HBM4, in line with the growth trend of high-performance DRAM demand, while applying high-performance and high-capacity products such as DDR5 and LPDDR5 to the server and mobile markets.

Therefore, in fact, there are some differences in the new cycle of the storage industry, which is that the driving force behind it will shift from traditional PCs and smartphones to AI models. Not only in the training end, but also in the AI big model, it will feed back terminal devices, shape new product concepts such as AI phones and AI PCs, and bring the demand for high-performance storage. According to a research report by China Development Securities, with the extension of various AI applications, the average carrying capacity of DRAM and NANDFlash on smartphones, servers, laptops and other single machines will significantly increase.

In terms of storage products, according to reports from South Korean media, Samsung plans to raise the price of enterprise level SSDs by 20% -25% in the second quarter of this year, based on the first quarter price. The original plan was to increase the price by about 15%, but due to the unexpected surge in demand, the storage giant has decided to increase the increase.
With both quantity and price rising, a new cycle of the global storage market has begun

epilogue

At present, we are in a new cycle of global storage product growth, not simply through manufacturer regulation, but rather a return to low inventory in the market and the emergence of new demand driving storage product shipments. Although we say that storage products and consumer stickiness are not high, as a bulk semiconductor industry, storage still needs a consumer market. In the new cycle, this market has shifted from traditional PCs and smartphones to new applications driven by AI big models.