Nanya Q3 2022 Earnings

October 11, 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 Q3 2022 Performance

Revenue in the third quarter declined a staggering 38.9% sequentially. Within this, bit shipments were down low-twenties % and ASPs were down low-twenties %. For the two previous quarters, bit shipment volumes declined 9.6% and 1% in Q2 and Q1, respectively. ASPs declined mid-single-digits % in both Q2 and Q1. Gross margin fell from 44.1% in Q2 to 32.6% in Q3. Operating margin dropped from 29.8% in Q2 o 8.3% in Q3. This is the lowest operating margin in more than five years. Gross margin was below this level from the middle of 2019 (end of last downturn) to the end of 2020.

Bit Shipments and Capital Expenditures

Nanya again lowered their full year 2022 bit shipments forecast. In Q1, they forecast flat bit shipments year-over-year. In Q2 this was “flat-to-down.” Now they have lowered this forecast to down twenties percent because of the weaker market. They further lowered their capital expenditures for the year, from NT$25B to NT$22B. This was NT$28.5B six months ago. Within this figure, capital spending on production equipment will be 40% lower than 2021 levels. For 2023, production equipment CapEx will be reduced a further 20%. Their overall CapEx in 2023 will be no more than the NT$22B of 2022, with a higher percent of construction spending as they build their new fab. For comparison, Micron is lowering WFE spending in their FY-23 (starting September 2022) by 50% compared to FY-22. While the years don’t line up between the two companies, their reductions in WFE spending in the coming twelve to sixteen months are similar, around 50%.

Q4 2022 Market Outlook

There is potential for a global recession triggered by high inflation, interest rate hikes, war in Ukraine, and China COVID-19 control measures. The electronics market demand is weaker than prior expectations with customers working down their inventory. DRAM supplier inventory has increased with some vendors (Micron) announcing CapEx reductions. Last quarter, Nanya management characterized this as a “short-term market correction,” a characterization they didn’t repeat here. Management also predicted last quarter that softening demand would prompt major DRAM suppliers to lower capacity investments in 2023. Micron has done this. Hynix and Samsung will announce results in the next two weeks.

  • Server Market: Datacenters construction prolonged, demand push back due to rising energy prices and global economic slowdown
  • Mobile Market: Average DRAM content increased, however smartphone annual shipment may turn negative growth, due to high inflation and China market weakness. High end smart phone remain relatively healthy
  • PC Market: Sluggish PC demand, annual shipment decline widen. High end PC remain relatively stable
  • Consumer Market: Inflation and rising interest rates reduce consumers’ purchasing power. TV and set-top box shipments decline, storage demand weak, however networking and automotive DRAM demand stabilizing

Analyst Call

Prepared Remarks

  • The DRAM market is worse than expected
  • Company net income was much higher than operating income because of favorable foreign exchange effects

Analyst Q&A

  • Q4 is likely to be better than Q3 because the third quarter was so bad. The current DRAM environment couldn’t be worse. They cited hopes of potential China government stimulus as a possible source of demand recovery. Micron said something similar in their last two calls.*The company is not planning to reduce their production. They intent to adjust their product portfolio in response to market weakness. This is a departure from what Micron, as that company announced they will reduce wafer outs in the near term. Management did say their market share is so small that any cuts they make would have little effect on overall supply-demand balance. This is true.
  • Nanya will increase bit output again in 2024
  • Management believes the trough quarter for DRAM bit shipments was the third quarter. They believe bit shipments will begin to recover in the fourth quarter of 2022. He declined to predict when ASPs would reach their nadir.
  • Their 1-alpha is sampling to customers. Their 1-beta node is in pilot manufacturing. These nodes will not impact output in 2023 but likely will in 2024.
  • Bit growth was flat in 2020 and 2021, then will decline in 2022 and will recover to positive growth in 2023


Nanya’s comments were similar enough to those from Micron’s most recent call that I wondered if they reworded Micron’s press release. The DRAM market fell off a cliff in Q3. The company’s revenue fell a staggering 39% sequentially with the drop equally attributed to lower shipments and falling prices. Their full financials aren’t released yet but they are certainly growing inventory. CapEx on production equipment will be reduced 40% for the full year 2022 compared to 2021. For the full year 2023, they plan to lower CapEx on WFE another 20% from 2022 levels. Bit growth will be down in 2022 and up somewhat in 2023. This means they are converting to more advanced nodes, which will lower their cost per bit, but their wafer output is going down. This is the only way to spend money on CapEx and keep bit output flat at the same time, because there are more bits per wafer on subsequent process nodes. Nanya is going to lose some market share with these decisions, though they are so small it makes little difference to the supply-demand crisis. It is still good that they are cutting CapEx as it signals they are aligned with Micron in taking action to reduce supply growth. I hope to see Hynix and Samsung make similar announcements in the coming weeks.

Smooth H (long MU)