10.31.24
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
- · Tech company investments led to strong demand for both AI and conventional servers in the quarter. Mobile demand was negatively impacted by inventory adjustments.
- · The supply demand balance for mobile memory was somewhat affected by increasing supply of legacy products from China.
- · In the fourth quarter, they expect the market conditions seen in the third quarter to continue.
- · The company is focused on profit rather than short-term bit share. This is a nice way of saying they will hold bits back in the short term for better pricing, but the company will not lose sight of their market share and will protect it over the long term.
- · Memory business fundamentals are improving.
Earnings Call
These are the highlight quotes regarding DRAM and NAND:
- · In the fourth quarter, HBM3 sales should start to expand “meaningfully.” They expect to see a recovery in memory market conditions and IT demand. This just means the derivative will be positive.
- · Investments continue at the Pyeongtaek site, including the completion of P3 and the progress of the shell for P4. These investments are for mid-to-long term demand. Current capacity investments are adjusted “dynamically” in accordance with market conditions. The investments they called out are HBM capacity and node progression.
- · In the third quarter, the memory market “somewhat recovered compared to the previous quarter.” “Completion” of inventory adjustments at PC and mobile customers led to improvements in the demand environment. Conventional server demand was “relatively sluggish.” Demand for AI-oriented products remains strong.
- · Management said, in a less direct way, the same thing Micron and Hynix said in their last earnings calls. That is, Samsung said they will change levels of production to reduce inventory rather than by selling more bits. They cited this as the reason for their bit growth in the quarter coming in under guidance, and for the “decent” increase in ASPs. This is a big deal for Micron investors, assuming all three companies are good to their word.
- · They see memory inventory levels to now be normal, so they are forecasting the recovery in the memory industry to accelerate. PC and mobile customers were specifically called out for having normalized inventory levels, so demand will “likely improve.”
- · The company expects overall memory market ASPs in the fourth quarter to expand compared to the third quarter. Saying “overall” here is specifying that it is not just the AI memory market but the broader memory market that will improve faster in the fourth quarter than it did in the third quarter.
- · The company made several comments about moving to more advanced nodes faster and AI applications in new mobile devices and PCs.
- · In the third quarter, DRAM ASPs increased by mid-single-digits % (was up high teens % in Q2, up 20% in Q1 and up very-low-teens % in Q4-23).
- · Over the last four quarters, this is a total increase in DRAM ASPs of about 65%.
- · In the third quarter, NAND ASPs increased by a low single-digits %. NAND ASPs were up low 20% range in Q2 and in Q1, NAND ASPs increased by low 30% (was up high-single-digit % in Q4-23.)
- · Over the last four quarters, this is a total increase in NAND ASPs of about 75%.
- · DRAM bit growth in Q3 was up 10%. DRAM bit growth was up mid-single-digits % in Q2, it was down mid-teens % in Q1 and was up mid-30% in Q4-23.
- · Over the last four quarters, Samsung’s DRAM bit supply is up a total of about 33%.
- · In the third quarter, NAND bit growth was down by low single-digits %. In Q2, NAND bit shipments declined mid-single-digits % quarter over quarter (was down low-single-digits % in Q1 and up in the mid-30% in Q4-23.)
- · Over the last four quarters, Samsung’s NAND bit supply is up a total of about 23%.
- · In Q4, they expect DRAM market bit growth to be up 10% and Samsung will be above this. For NAND in Q4, they see market bit growth being flat and for Samsung to be above the market level of bit growth.
- · They are planning to increase their supply capacity for HBM in 2025 by 2.5x over the level of 2024. In last quarter’s earnings call, they said this increase would be 2x, so they have increased their HBM bit growth plan for 2025.
- · They took a meaningfully sized inventory valuation loss on memory due to production cut effects and accounting conservatism.
- · In 2025, they see the selective production cuts of some memory products will continue next year. There will be “fairly limited up room in terms of production bit growth next year in the industry.” This is good sentiment but 2025 is four quarters long. At least it means they don’t see capacity coming online in the first quarter of 2025.
- · Their DRAM and NAND inventory peaked in May of 2024 and has been declining since then. They think their inventory levels will decrease at a “rapid pace” in Q4. They want to get to normal inventory levels as fast as possible and they are planning to take additional measures, such as selective production cuts, to do this. They plan to reduce NAND production more than DRAM production.
Summary
We got the news we hoped to get out of Samsung this quarter. They joined Micron and Hynix by saying they will hold back inventory and risk short term market share loss to support pricing. As with the other two companies, they also signaled that the company will protect their market share over the longer term. All three DRAM companies are racing as fast as they can to shift capacity to HBM and DDR5 and away from mobile, PC and consumer. They are also all investing in infrastructure, advanced packaging, and node migration but not in anything else. They are all particularly averse to NAND investment. I was surprised at the lassitude in the price increases Samsung saw this quarter. DRAM ASPs were only up around 5% sequentially and NAND was just up a couple of percent. On the positive side of the ledger, Samsung’s comments on inventory were the best I have read. They said inventories in the industry are reaching normal levels. They also believe customer inventories are normal and that demand will increase in the fourth quarter as a result. It is noteworthy that Samsung’s bit supply in DRAM is up by about 33% in the last four quarters. This is much more than the rest of the inventory has grown and has to be a big reason for the tepid recovery outside of AI. They have grown their NAND bit supply by about 25% in the last four quarters. This is also faster than the industry but not nearly by as much as DRAM. Still, this is also hurting the health of the NAND market. Now that Samsung is ramping HBM products in earnest, their bit supply growth will hopefully level off and maybe even come down. The company said the right things about not adding capacity at this time and focusing on profitability.
– Smooth Hughes (cyclical long MU)