July 27, 2023
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.
- · Server segment customer inventories remain elevated, leading to weak demand. The high-density/high-performance subsegment is showing strong demand because of AI investment by hyperscalers.
- · Prices continue to decline and they took another inventory write-down this quarter. NAND is especially bad.
- · In DRAM, bit growth exceeded guidance because of DDR5 and HBM sales for AI applications.
- · In NAND, the ASP drop eased significantly quarter-over-quarter.
- · The company believes demand will recover gradually in the second half of 2023. Also, customer inventory adjustments “are likely to wind down.” They believe the demand recovery will be across all segments and not restricted to AI as the strength in the second quarter was.
These are the highlight quotes regarding DRAM and NAND:
- · Demand from AI led to DRAM shipments above expectations. However, sluggish demand in other segments caused further underutilization charges in their fabs.
- · Consumer and mobile segments showed relatively stable memory demand.
- · Inventories for both DRAM and NAND both peaked in May.
- · Memory price declines were lower in the second quarter than in the first quarter. The executive said ASPs declined mid-to-high single digits percent compared to mid-teens percent in the prior quarter. He didn’t specify which type of memory he meant, so it could have been DRAM or a blend of DRAM and NAND.
- · Demand from mobile and PC segments are expected to improve in the second half as inventory levels at customers normalize and end demand increases.
- · The company will adjust their output, both volume and mix, to match market demand, which is expected to gradually recover in the second half of the year.
- · In Q2, DRAM bit growth was in the mid-teens % (the teens are defined as 10% to 19%). ASPs declined by mid-to-high single digit %. Q3 bit growth is expected to be mid-teens % with Samsung similar to the market.
- · In Q2, NAND bit growth was in the mid-single digit % and ASP declines were mid-to-high single digit percent. For Q3, they expect market bit growth to be mid-to-high single digit percent and Samsung expects to “somewhat” outgrow this in that period.
- · They have already booked about 2x the level of HBM sales they had last year. Demand for these products is expected to increase rapidly. Thus, the company is investing heavily in increasing this capacity.
- · By early 2030 (way out there,) automotive memory demand is forecasted by some to be a larger consumer of memory than the PC market.
- · AI workloads are driving a shift in DRAM demand to higher density modules.
Samsung is the biggest memory company but provides the least information in their earnings releases. Similar to what Hynix said, they expect a broad recovery in the second half. 2Q strength was from AI demand. The rest of the memory segments are weak, though the rate of price declines has slowed. The company didn’t give specifics about production cuts or capital expenditure reductions, saying only that they are adjusting their supply and mix to try and match demand. The most important comment from the call was the statement that memory inventory peaked in May, in Samsung’s view. All the memory suppliers are saying the same thing; that the second half of 2023 will bring a gradual recovery in demand for DRAM and NAND and that the market will improve. This isn’t saying the upturn will start, just that things will get better. I believe the upturn will begin in the second half of the year, as seen by an inflection in DRAM pricing upward. I think the pain in NAND will continue into 2024. My biggest lesson from the last cycle is that the executives at memory companies aren’t reliable about anything beyond the next quarter. Even within that ninety-day window, their prognostications are poor. However, all companies agree inventories have peaked and pricing declines, especially in DRAM, have slowed down in the last two quarters. History tells us when the memory market turns, it goes up rapidly. My prediction is that a steep recovery will come to the DRAM market by the end of 2023.
-S. Hughes (cyclical long MU)