July 14, 2022
About the Company
Nanya is a small Taiwanese DRAM manufacturer. They produce DRAM on trailing-edge process nodes (licensed from Micron) but are developing their own more advanced, technology. Nanya has about a 3% share of the DRAM market, a distant fifth, behind Samsung, Hynix, and Micron. The top three companies control a combined 95% of the DRAM market.
I don’t own any shares of Nanya and would not buy any, because they lack the scale and the technology to be competitive in DRAM. I keep an eye on their quarterly releases as a data point on the DRAM market.
Market Commentary and Q1 2022 Performance
Revenue in the second quarter declined 9.6% sequentially. Within this, bit shipments were down high-single digits % and ASPs were down mid-single digits. For the two previous quarters, bit shipment volumes declined 1.0% and mid-single digits and ASPs were down mid-single digits and low-single digits %. Even with down shipments and down pricing, gross margin surprisingly expanded by 20 bps, to 44.1%. Favorable foreign exchange helped some here.
Bit Shipments and Capital Expenditures
Nanya lowered their bit shipment growth forecast for the year 2022, from flat to flat-to-down. They have lowered their capital expenditures plan for the year, from NT$28.4 three months ago to NT$25 today. This means they are slowing down some both their technology migration plans and the construction of their new fab.
New Fab Plan
The total fab capacity will be 45,000 wafers/month, after all three phases are built out. Total cost is estimated to be NT$300B. They say it will be 10nm-class (1-alpha and beyond process technology) and capable of using EUV. They must be planning on developing the technology internally as they are well behind these node levels today. It is far in the future, with the first phase of production starting in 2025.
2H 2022 Market Outlook
The company now sees weaker DRAM demand in the second half of the year, a reversal of their commentary three months ago, when they saw component shortages easing in the second half of the year and an overall balanced market. They did cite high inflation and China COVID-19 control measures as potential risks, which were again included in their commentary. They added consumer weakness to the list of why their DRAM market outlook has soured. They did characterize this as a “short-term market correction.” This just means they are holding out some hope that demand recovers and supports pricing, as this weakness is all demand-driven. Supply growth has been moderate. Nanya believes the softening of demand will trigger major DRAM suppliers to lower capacity investments in 2023.
• Server Market: Datacenter leading demand growth, however the adverse effect of inflation likely impact server DRAM demand in 2H’22. New CPU platform with DDR5 launch delayed
• Mobile Market: Average DRAM content increasing, however smartphone shipment trim down due to macro-related downside
• PC Market: Enterprise demand remains solid, while consumer demand soften, 2022 NB shipment decline
• Consumer Market: WiFi 6/6E stimulates networking demand. Automotive demand resumes growth while component shortage alleviated. Control measures have severely reduced local demand in China in 1H’22, and 2H’22 remain unclear
Analyst Call
Prepared Remarks
• While not providing Q3 guidance, with the downturn in the market, it is unlikely that the revenue and income performance in Q2 will continue into Q3
• Groundbreaking of the new fab happened on June 23rd. It will include a separate EUV building.
• In servers, new CUP platform with DDR5 memory launch has been delayed
• Consumer markets are weakening, leading to lower unit sale forecasts for mobile phones and consumer PCs
Analyst Q&A
• They are planning to grow bit shipments in the third quarter, but are cautious about the inventory situation
• Recovery in memory demand depends on easing of COVID-19 control measures in China and on stimulation of the economy by the PRC
• Nanya is forecasting such a long time for fab construction because of shortages of labor and materials, and because they are building a two-deck fab
• They are targeting a 30% growth in bits per wafer in each node, starting with the 1-alpha node
• OpEx and R&D will be similar in the second half to what was reported in the first half
Summary
Nothing new here regarding insight into the memory market, vs. what Micron said. Both mobile phone and PC units are down, much of which is caused by weakness on China consumer demand. The new fab news is colorful, but not material at this time. Adding capacity that won’t come online for three more years and will do so with technology that Nanya doesn’t have, is not a supply worry today. The small amount of new news from this call is that Nanya will lose even more market share in 2022 than they thought they would previously.