April 28, 2022
Samsung is the market leader in both DRAM and NAND and their memory divisions are just part of a massive conglomerate. I look through their earnings presentation and conference call transcripts for insight into the state of the memory market. This is not an analysis of their earnings, prospects, etc.
Earnings Presentation
• In the first quarter, Samsung memory came in at the high end of forecasts because they exceeded bit growth guidance, with demand led by server and PC, and price declines were milder than expected
• Outlook for the second quarter of 2022 is for demand to stay solid, led by the server segment, though uncertainties persist. In DRAM, they will expand sales in high-value-added products (this is DDR5, server modules, high bandwidth memory, graphics) while prioritizing fast-growing markets. They called out supply chain shortages in NAND, because this memory type goes into SSDs, which are more complex and have more components.
• Outlook for the second half of the year is for solid server demand to continue and for high end mobile demand to recover
• The theme of Samsung’s comments is that they are highly focused on adjusting product mix to maximize profitability. The company also called out flexibility in supply and attention to cost competitiveness.
Analyst Call
These are the highlight quotes regarding DRAM and NAND:
• In DRAM, overall server demand continued to show a favorable trend. Thanks to increased DRAM content related to rising adoption of high core CPUs and alongside still strong demand from data centers. Starting in the fourth quarter of last year, Set Build momentum for enterprise PC has been recovering, thanks to improvements in component shortages and demand for high-end products has been solid, which have – impacts a weak seasonality to a degree.
• Mobile demand was somewhat tepid as launches of new models by major manufacturers weighed on by effects of the crisis in Ukraine and China’s lockdown in major cities amid weak seasonality. We preemptively identify shifts in demand through our own machine learning-based marketing system and actively responded to server demand. As a result, we exceeded our bit growth guidance and achieved record high quarterly sales for server.
• [In the NAND market] demand for server SSD from data centers remained solid, thanks to pent-up demand from last quarter, in which Set Build was partially influenced by disruptions in IC component shortages. Our server OEMs contributed to strong demand for server SSD related to increased investments in new IT infrastructure. The demand trend for client SSD was solid, backed by robust demand for enterprise PCs as companies increasingly follow back to office trend and expand hybrid work models and by increasing SSD penetration in conjunction with growing adoption of high-end PCs.
• In Mobile, despite ongoing partial improvement of supply for low to mid-priced APs (application processors) and events such as launches of flagship models from major manufacturers, memory demand slowed somewhat due to weak seasonality and inventory adjustment by some customers.
• Now let’s move on to the second quarter outlook. In DRAM, for servers, Set Build will likely depend on the pace as to how quickly supply chain issues get resolved. Thus, we need to continue to monitor the situation meticulously. Meanwhile, we expect the server demand centering on high-density products to be relatively solid, aided by continuous penetration of DDR4 8-channel CPU.
• As for PC, there are some demand uncertainties caused by inflation as well as economic slowdowns and reduced consumption influenced by the crisis in Ukraine. On the other hand, there is also a potential for solid demand based on the continuing trend towards high density, combined with the rising penetration of DDR5.
• In NAND, amid shortage in chip production provoked by external issues and impacts of short supply of active pass components, we expect server demand centering on high-density products to grow based on the investment expansion mainly for data centers. However, we should keep an eye on possible demand changes considering uncertainties, including macro issues.
• Meanwhile, due to various macro issues, we expect to see some effects on demand in consumer-oriented product lines. First, for client SSD, consumer PC demand is likely to shrink amid global inflation and the effects of the crisis in Ukraine. The enterprise PC demand is likely to be solid and high-density trend of SSDs backed by increased sales of high-end PCs will continue, which should ease some effects of weak demand.
• For Mobile, the short-term market environment is unfavorable due to lockdowns in major Chinese cities amidst low seasonality. The consumer sentiment has potential to recover later in the quarter with the launch of new form factor models. With people spending more time outside, following gradual easing of quarantine regulations in some countries and with the resumption of investment in 5G infrastructure. Amid impacts of shortages of active pass components, we will maintain our efforts to promptly address customer demand including strong SSD demand for enterprise sector by our business competitiveness.
• Now to answer your question first on the PC side. Within the PC, we think that the demand for high-spec PCs and commercial PC demand would remain solid. Now the consumer PC application that we’re expecting the demand to be somewhat weak or soft given the impact of various macro issues we’ve been talking about. But even within the consumer PC segment, there is a drive towards higher spec PCs from gaming or hybrid work needs. Also, there is this consistent trend of higher density in PCs, which may partially offset the softness in consumer PC demand.
Memory pricing and bit growth commentary:
• In the first quarter for DRAM, our bit growth increased by a low single-digit percentage. And ASP also declined by a low single-digit percentage compared to the prior quarter. For the second quarter, we expect market bit growth to be in line with mid-teen percentage range, and our bit growth should be similar.
• DRAM bit growth in the fourth quarter decreased mid-single digits percentage (was low-single-digits % in Q3), and ASP declined by a similar magnitude (was high-single-digit % increase in Q3).
• For NAND, our bit growth increased sequentially by a high single-digit percentage, while ASP declined by a mid-single-digit percentage. In the second quarter, we expect market bit growth of high single-digit percentage, and we should be similar to the market.
• NAND bit growth in the fourth quarter was a decline of low-single-digits % (was mid-single-digits % positive in Q3). ASPs in the fourth quarter also declined low-single-digits % (ASPs were up around 10% in Q3).
Summary
Pricing for DRAM declines low single digits percent in the quarter, which translates to 1-2%. This is the second consecutive quarter of declining DRAM prices, though price declined more gradually. NAND has followed the same pattern; two consecutive quarters of small percent declines in ASPs after a strong increase (up 10%) in Q3. In both DRAM and NAND, Samsung is targeting to grow in line with the overall market. They have said in the past, and hinted similarly in this call, that they will prioritize profitability in DRAM. This translates to mean they will be cautious in adding DRAM capacity so as to not oversupply the market. DRAM memory seems to have been running right on the edge of supply balance for the past four quarters. ASPs softened gradually in the late Spring and Summer of 2021, then strengthened in the Fall and early Winter. Now prices are again gradually declining. Samsung said the softness is driven by weakness in consumer markets, specifically mobile and consumer PCs. Enterprise PCs and the data center segment are providing steady demand. They are continuing to face some diminishment in memory demand because of shortages in other components. Macro concerns (war in Ukraine, rising interest rates and the fear of a recession that brings, COVID lockdowns in China) are hanging over the memory markets now. It further hurts the outlook for memory that spot prices continue several weeks of declines. The bull case for Micron is that memory will go into undersupply in the second half of 2022 and margins will expand with rising prices. The macro situation makes forecasting this even more fraught than it would be during calmer times.
-S. Hughes (long MU)