The memory chip industry has survived the harsh winter and is experiencing an improvement in cyclical demand. DRAM price increases are coming, and prices are expected to increase by 20%. According to media reports on January 3, news from the memory module industry said that major memory manufacturers such as Samsung Electronics and Micron plan to increase DRAM prices in the first quarter of 2024, with the range expected to be between 15% and 20%.
Industry analysts believe that this move is mainly to improve profitability, and the focus of price increases will shift from NAND Flash to DRAM, especially the two types of DDR4 and DDR5. This upward trend in memory prices is expected to continue until the end of 2024.
Morgan Stanley expects Samsung to rapidly increase profit margins through memory price increases and raises Samsung's profit forecast.
Supply bottoms out, demand picks up
According to reports, due to the previous high inventory of DDR4 and the weak market price performance, it is expected that the prices of DDR4 and DDR5 will be increased in the first half of 2024. DRAM quotations were only slightly increased by 2 to 3% in December, but were still significantly lower than the 10% increase of 3DTLC NAND. As for DDR3, due to relatively stable production capacity and demand, its price increase is expected to be relatively gentle, while the increase in NAND, although not yet clear, is expected to continue to increase.
South Korea's major DRAM manufacturers have reduced DRAM productivity for two consecutive quarters in the second half of 2023, and wafer output has reached a bottom in the fourth quarter. For example, Samsung's DRAM output in the fourth quarter is only about 70% of that in the first quarter of 2023, and it is also gradually increasing the output of advanced processes.
The memory chip industry has survived the harsh winter and is experiencing an improvement in cyclical demand. As demand for mobile phones and servers gradually rebounds, the supply of the DRAM market is expected to continue to be tight in 2024. At present, upstream original manufacturers are planning to increase DRAM quotations, and downstream customers have begun to replenish low-price inventory and stock up.
Morgan Stanley also pointed out in a previous report:
Downstream customers have begun to replenish inventory. Chinese smartphone OEMs will see a significant increase in orders in Q1 2024, and computer ODM/OEMs are also building inventory. The replenishment of inventory by smartphone manufacturers will lead to price increases and inventory will return to normal levels (it takes 4-6 weeks for mobile DRAM and 6-7 weeks for NAND).
From the perspective of supply and demand, after storage manufacturers have significantly reduced production, their output is far below demand. As demand improves, the prospect of price increases in 2024 will become clearer.
In addition, Morgan Stanley pointed out that artificial intelligence demand will further boost memory chip prices. Although artificial intelligence applications are mostly deployed in the cloud, edge demand will become more and more common (mobile artificial intelligence) starting from 2024, and may gradually enter the smartphone upgrade cycle.
Demand has not yet stabilized, but memory stocks have begun to enter an optimistic phase
However, market demand has not yet stabilized. Whether DRAM prices can rise as strongly as NANDWafer still needs to be observed after the Lunar New Year.
The industry believes that the actual purchasing power of the market has not fully recovered, and transaction demand is relatively flat in the short term. It is expected that the terminal market will maintain a wait-and-see attitude in the first half of the first quarter and before the Lunar New Year. The first to second quarters will be critical. If the export demand for major applications is smoothly connected, the prosperity of the memory industry will be established, and the industry's shortage of supply will become inevitable. It is expected that the contract price supplied to OEM factories will fully reflect the increase in DRAM in the second quarter.
Morgan Stanley believes that as earnings per share growth accelerates year-on-year, memory stocks tend to outperform. Now they have just entered the mid-cycle/optimistic stage. The spot price of DRAM is -16% year-on-year, which is still far from the peak level. Valuations aside, the memory chip cycle has recovered from the lows in the first quarter of 2023 and will further improve into 2024.
U.S. memory stocks are now much cheaper than in the previous cycle, and the memory chip industry will enter a period of accelerated cyclical growth and significantly increased demand.