DRAM spot prices have been on a decline since April and the same trend continued into the month of May, with the prices for DDR4 4GB 512Mx12 eTT falling about 13.94% and other modules decreasing around 3 to 7%. For NAND, the spot prices had been climbing in April but the trend changed in May as the prices started to decline, which continued for the whole month, with price for 64Gb 4Gx8 MLC dropping about 13.77%. This is bad news for Micron.
DRAM industry has 3 major players, Samsung (OTC: SSNLF), SK Hynix (OTC: HXSCL) and Micron (MU) with 44.1%, 29.3% and 20.8% market share respectively. These three companies dominate around 95% of the DRAM market. Whereas NAND industry has 6 major players. The major market players for NAND being Samsung at 35%, followed by Toshiba’s (OTCPK: TOSBF) Kioxia (18.7%), Western Digital (WDC) (14.7%), Micron (11.3%), Intel (INTC) (9.7%), and SK Hynix (9.6%). This makes NAND a more competitive market compared to DRAM.
The intense competition among these players has led to a backlog of orders and oversupply. The oversupply resulted in a collapse in selling prices for NAND. Though with lockdown tightening around the globe, the demand for memory servers surged. As the people are confined to their homes, they are forced to shift to remote working and virtual classrooms. This rise in demand absorbed the oversupply.
The inventory levels for DRAM suppliers reduced as their inventory levels were significantly lower at the end of Q1 20 compared to the beginning of the quarter. Their success in reducing the inventory levels removed the pressure of slashing prices off of them. The DRAM ASP rose around 0-5% QoQ.
The lockdown created several supply chains issues for the economy as well as the logistics problems for DRAM shipments. Hence, even with slight rise in ASP, the DRAM revenue dropped by 4.6% reaching US$14.8 billion.
Impact on Micron
For Micron Technology, DRAM and NAND flash memory chips are two of the main revenue generating products. In the second quarter, DRAM sales contributed 64% towards the revenue of Micron and NAND sales contributed about 34%. Hence a drop in the price for NAND and DRAM would affect the gross profit margin of the company. A decline in prices would mean lower gross profit margin for the company and in turn a low gross profit.
COVID-19 had impacted the industry demand. For Micron Technology, post COVID-19 it saw a surge in cloud workload, data center demand along with increase in demand related to PC and e-learning. This being a result of the public shifting to work from home and virtual learning amidst the lockdown.
The company released its earnings outlook for fiscal third quarter. The outlook raised from a previous one on the account of favorable demand for both NAND and DRAM. Also driven by a recovery on the supply side better than the estimates. Micron Technology now expects revenue of $5.2 billion to $5.4 billion, with non-GAAP earnings of 75 to 80 cents a share.
Demand for memory servers expected to go down in the second half of the year as the demand for data centers to contract. The sluggish demand for the memory might have low impact on DRAM and a negative impact on NAND.
In case of low demand, the price of DRAM will see a very low growth rather than a decline because of the shortage of supply. But NAND flash memory having more than sufficient supply could cause the prices to decline as the demand decrease from the clients-side.
DRAM ASP could increase in 2Q 20 5 percent sequential growth in 3Q20 but flatness in 4Q 20. And for NAND the ASP could increase around 3% in 2Q 20 with a flatness or decline of 5% in 3Q 20 and for Q4 20, the prices could fall as far as 10 – 15%.
On Monday, Samsung Electronics announced the commencement of construction at Pyeongtaek plant in South Korea to expand its V-NAND memory production line. The expansion comes forth as the company expects to see growth in mid to long term demand for NAND flash memory amidst the fourth industrial revolution fueled by Artificial Intelligence, Internet of Things and 5G expansion. Since 2002, Samsung has been a leading manufacturer of NAND flash memory but its market for NAND (33%) isn’t as high as it is for DRAM with around 44%.
But as Samsung plans to maintain it dominance, other competitors are also upgrading technology. Yangtze Memory Technology announced its plans to begin mass production of 128-layer NAND flash in late 2020. With Intel also getting ready to mass produce 144-layer NAND this year.
These companies upgrading technologies and preparing to increase their production. This indicates an industry wide belief in a long-term growth of memory market fueled by the Artificial Intelligence, Internet of Things and 5G expansion.