January 10, 2024
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 94% 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 2023 Performance
The PC segment, the dominant market for Nanya’s products, entered oversupply first, so it should be the first segment to emerge. Therefore, Nanya is a leading indicator for the DRAM market. Net sales were up by 12.5% Q-o-Q, following a 10.1% sequential rise last quarter and 9.4% increase the quarter before. Bit shipments rose low-teens % while ASPs increased low-single digit %. The market was showing signs of bottoming out in August of last year and I have been surprised at how slowly DRAM prices have increased after the inflection point. Micron reported three weeks ago and also saw a low-single digit % rise in their DRAM ASPs in their most recent quarter. I think the large inventory held at DRAM makers is the reason for this. It is acting as a shock absorber for supply. In prior cycles, the DRAM manufacturers would blow out all their inventory when the market was weak because it was more perishable than it is now. That led to a sharper rise when demand caught up to supply because there was little inventory left to fill the supply-demand gap. In this cycle, memory manufacturers held inventory instead of further flooding the market, because process technology isn’t migrating as fast, so silicon parts aren’t obsolete as quickly. For the last eight quarters, going back from Q2-23 (from newest to oldest), ASP changes have been: up low-single digits, down high-single digits, down mid-single digits, down mid-single digits, down high single digits %, down mid-20s%, down low-20s%, down mid-single-digits %, down mid-single-digits %. This quarter marks the end of almost two years of declining DRAM ASPs. Gross margin was (13.6%). This is a sharp improvement from the (25.2%) GM last quarter. Better pricing and lower idle charges were cited for the margin improvement. No mention of the benefit of written-down inventory in the investor slides. It has now been a year since Nanya stopped showing their gross margin graph. I bet they bring it back in two more quarters, when gross margin is back above 20% and rising.
Bit Shipments and Capital Expenditures
Two quarters ago, the company reduced their 2023 capital expenditures forecast from NT$18.5 to NT$15.0B. This quarters, they deferred NT$4.4B of 2023 spending into 2024. 2023 came in at NT$13.2B. That is a third less than the 2022 level of NT$20.7B. Subject to Board approval, the company is planning on NT$20.0B of capital expenditures in 2024, of which ~50% will be on WFE. Bit shipments in 2023 were down mid-single digits. This is what the company forecasted last quarter, so no change in the last ninety days. They believe their bit shipments will grow more than 20% in 2024 year-over-year. Following this comment, they said production output may gradually resume to normal levels over the year. If this forecast comes to pass, Nanya’s bit shipments in 2024 will still be about 10% below the level they were in 2021.
2024 Market Outlook
As usual, Nanya’s comments about the future of the DRAM market have little to no value. Between the vague generality of their comments and their track record of inaccuracy in their forecasts when they do say something substantial, time I spend reading their “Market Outlook” slide is often wasted. Their two general outlook comments; DRAM demand is expected to grow throughout the year from AI usage and the DDR4 to DDR5 transition, burnish the company’s reputation.
- · Server Market: AI server demand is favorable for the sector. IT spending by US cloud service providers is “key to recovery.”
- · Mobile Market: New smartphones “ignite” DRAM content growth. This sounds good but doesn’t actually say anything about overall mobile demand growth.
- · PC Market: As was the case last quarter, they said nothing of value.
- · Consumer Market: Demand for IP CAP, networking, industrial, and automotive segments are “relatively healthy.” They expect demand in consumer markets in 2024.
Analyst Call
Prepared Remarks
· They have less idle equipment than one quarter ago.
Analyst Q&A
- · Their ASP increase is lagging peers because Nanya is behind on HBM. Their comment indicated they would not design and sell an HBM product.
- · Pricing in all segments is improving now.
- · Break-even financial performance will be reached in the second half of the year, and maybe as early as mid-year.
- · Their revenue today is roughly 60% DDR3 and 40% DDR4. They hope to have customer samples of DDR5 towards the end of the second quarter.
Summary
ASPs rose slightly in the quarter, less than other DRAM makers. The main reason for this is the strongest pricing surge has been seen in HBM DRAM and Nanya doesn’t have a product in this segment. They still don’t have samples out of DDR5 while Micron, the leader in the conversion to DDR5, is planning bit crossover to DDR5 in the next few months. The CEO has been pessimistic about when the market will turn in past calls. In this call he showed some optimism, saying the DRAM market will steadily improve in both demand and pricing as the year 2024 goes on.
-S. Hughes (cyclical long MU)