July 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 second quarter, memory shipments were below bit guidance, because of weakness in demand for consumer products caused by widening impact of macroeconomic issues. Server demand remains solid. Despite weaker bit shipments, revenue improved quarter-over-quarter as ASPs were better than expected. They cited their “disciplined sales strategy” for this performance, which means they are adding inventory and declining some business with pricing below threshold.
• In DRAM, while total bits missed guidance, revenue in the server segment set a quarterly record
• For NAND, bit growth was also below guidance because mobile was “much weaker” than expected
• Outlook for the second half of 2022 is for fundamental demand in server to stay solid. They said “fundamental demand” because server customers are drawing down inventory, which leads their actual demand right now to be lower than what they are consuming. Demand for PC and mobile is likely to continue to weaken because of deteriorating macro conditions.
• In 2H 2022, they will manage DRAM supply to match demand and prioritize profitability. This means they will hold inventory to keep ASPs from collapsing. In NAND, they will focus on creating demand based on their cost competitiveness. Said another way, they will stimulate the elasticity of demand by lowering NAND prices, because their low-cost position will allow them a higher level of profitability than their competitors at a given price level.
Analyst Call
These are the highlight quotes regarding DRAM and NAND:
• In memory, although bit growth came in below guidance due to weaker-than-expected mobile and PC demand, results improved both quarter-on-quarter and year-on-year as we maintained ASP by preemptively shifting our focus to meet solid server demand and by maintaining our disciplined sales strategy. The positive effects of a strong dollar also contributed.
• [for the second half of the year] in Memory, we expect fundamental server demand to remain solid, the macro issues are likely to cause continued weakness in PC and mobile demand. While closely monitoring impacts on the demand side, such as releases of new mobile products by our major customers, we will continue to focus on our high value-added and high-density portfolios.
• Similar to last quarter, memory investments concentrated on infrastructure at P3 and on capacity expansions and process migrations at fabs in Hwaseong, Pyeongtaek and Xi’an to address future demand.
• In DRAM, for server, there were some disruptions in set builds due to supply issues for certain components, with continued expansion of the proportion of high core CPUs kept fundamental end demand on a solid trend and memory demand on an upswing. Inventories increased at major PC OEM companies due to low sellout amid intensifying macro issues such as inflation and demand weakened accordingly. Mobile experienced weak demand trend as well as consumer sentiment worsened due to lockdowns in China and price instability caused by the prolonged Russian-Ukraine war. We achieved the high sales of server products in the industry for any quarter by optimizing our portfolio and actively responding to solid demand centering on servers. However, we missed guidance for total bit growth due to weak demand for consumer products such as PCs and mobile devices.
• Next, I’ll talk about the NAND market. For server SSD, along with continuously rising demand for high-density products, thanks to investment by data center customers, demand extended to low-density products as customers be to minimize set build disruptions caused by a shortage of active passive components. For client SSD, such shipments were flat due to weak purchase demand for PCs attributable to macro issues such as inflation, but SSD content per box and attach rate kept growing, thanks to the rising proportion of high-end products.
• First, for DRAM, in the second quarter, our bit growth increased by a mid-single-digit percentage (was low single-digit % in Q1), and ASP was flat quarter-on-quarter (declined low single-digit in Q1). For the third quarter, we expect market bit growth and our bit growth to stay flat compared to the second quarter. For NAND, our bit growth compared to the first quarter decreased by a percentage in the high single digits (bit growth was high-single-digit % in Q1), while ASP increased by a low single-digit percentage (ASP declined mid-single-digit % in Q1). In the third quarter, we expect market bit growth and our bit growth to both rise by around 10% quarter-on-quarter.
• To answer your first question about the Memory, actually, in second quarter, our performance, our business results in terms of both revenue and profit grew on a quarter-on-quarter and year-on-year basis, thanks to healthy pricing and also positive impact from FX. But that said, second quarter Memory market conditions were not easy. They were very challenging. It was not so in the case of server where server demand continued to remain solid, but it was on the consumer products that were hit due to various macro issues, including the rising commodity prices due to the extended war going on. Within the consumer products the demand for mobile was lower, particularly more than expected. And so that was the main reason why our shipments for DRAM and NAND came in lower than what we had originally expected. And between DRAM and NAND, NAND, which has a higher exposure towards consumer products had a more prominent decrease in shipments.
• [Regarding the server memory market] I think one thing we’ve noticed about server demand is that it’s relatively less sensitive to geopolitical issues or macro issues and that’s because servers have sort of a nature in infrastructure that enables a lot of the things we do in daily lives and at work that we take for granted. And so there is that nature as an infrastructure essential. And then there are some new growth areas such as AI, where investments into core infrastructure is continuing to expand.
• They declined to answer specifically if they will reduce memory capital expenditures, saying they manage node and capacity investment to meet to long term demand, and they adjust equipment installations to try and match current industry demand. Without committing to a specific number, this seems to indicate they will adjust capital spending in the near term if the market is soft.
Summary
Samsung saw bit demand for both DRAM and NAND below expectations and declining sequentially. Surprisingly, ASPs for both memory types were better than the previous quarterly trend. In DRAM, pricing was flat quarter-over-quarter and in NAND pricing increased slightly. These are both following sequential price declines from Q4 to Q1. The company said they will prioritize profitability in DRAM, which means they will adjust near term supply both by holding inventory and by lowering production. In NAND, they signaled they will use their competitive cost position to risk unbalancing the market by lowering prices to stimulate demand. This has been Samsung’s position for several quarters and NAND has held up well, indicating that there is adequate elasticity of demand. The company cited the same market conditions that Micron did in their call. Server demand is holding up, though customers are consuming inventory while consumer product demand (PC and mobile) has declined sharply. They were noncommittal about the second half of the year, a good position to have given their predictions in the call last quarter turned out to be wrong. The current macroeconomic environment is too uncertain to make predictions with much confidence.
-S. Hughes (long MU)