2.6.24
All three of the big DRAM companies made the right comment for memory investors. That is, all said that, while the market is improving and profitability is in the offing, ASPs are still well below the levels needed to justify investment in more production capacity. Capital expenditures at all the memory companies are being done in three areas: infrastructure for future fabs (fab shells, CUPs, etc.), node transitions, and assembly capacity for High Bandwidth Memory (HBM) production. The tone of the analyst calls and the language in press releases was positive across the board with limited cautious commentary about macroeconomic and geopolitical risks, etc. All the companies believe both NAND and DRAM markets have inflected upward but none are investing to create the next downturn yet. DRAM pricing was up low single digits for non-HBM memory and up more than 20% sequentially for HBM. NAND prices rose strongly and showed a wide range of increase across the different producers. Inventory levels at most customers have returned to normal levels, including server customers. Memory producers see their inventories for DRAM reaching normal levels by the end of the first calendar quarter of this year and NAND by the middle of 2024. Bit demand growth for the calendar year is expected to be in the mid-teens percent while supply growth will be in the low-to-mid single digits percent. This is for both DRAM and NAND. If this is true – and I believe everything lines up for this to be the case – ASPs will rise strongly during 2024. Inventory is reaching healthy levels across the supply chain. End demand continues to increase with a healthy economy in many geographies. Production cuts have been deep and WFE capex at memory companies is muted for now and for at least another quarter. If prices rise so sharply from here that capex investment are announced in the next round of earnings calls in March-April, it would still be around the end of calendar 2024 that any of the added capacity would come online. I think the most likely future is memory fabs will node advance away the idle capacity gradually and memory makers will ride undersupply to higher prices through all of calendar 2024 and into 2025. How high and how long is always the question at this point, but all the DRAM and NAND makers lost billions of dollars over the last two years. They need to make large profits in this upturn to justify the needed investments in future capacity and new technology development. I think they will make good on their comments to hold for significantly higher pricing before raising capital expenditures levels.
-S. Hughes (cyclical long MU)