Memory chips differentiate in recovery.

The memory chip market, which has always been regarded as the "wind vane" of the semiconductor industry, recovered strongly in the first half of this year.

　　According to the data released recently by CFM Flash Market, a professional storage market research organization, the global NANDFlash (non-volatile memory) market scale increased by 18.6% to $18 billion in the second quarter of 2024, and the DRAM (volatile memory) market scale increased by 24.9% to $23.42 billion. The scale of the global storage market increased by 22.1% quarter-on-quarter to US$ 41.42 billion in the second quarter, up by 108.7% year-on-year. In the first half of 2024, the global storage market reached $75.33 billion, a year-on-year increase of 97.7%.

　　The reasons driving the recovery of the storage market include not only the repair and return after the excessive decline of the market in the previous two years, but also the efforts of the original storage factory to actively reduce production and capital expenditure to promote the balance between supply and demand in the market. More crucially, the soaring demand for AI (artificial intelligence) computing infrastructure has brought new growth momentum to the storage industry.

　　Zhang Chi, chairman of Beijing Xinding Rong Sheng Capital Management Co., Ltd. told the Economic Observer: "The integration of storage and computing is the optimal solution in the AI ? ? era. The increasing demand for computing power construction will definitely drive the growth of storage market demand. The demand for AI servers is the main driving force of the current storage market."

　　However, in recent days, the storage market with strong recovery has also begun to change: TrendForce Jibang Consulting, a well-known research institution in the semiconductor industry, recently released a research report saying that in the second quarter of 2024, the shipments of storage module factories in consumer NANDFlash retail channels have been significantly reduced by 40% year-on-year, reflecting that the global consumer storage market is facing severe challenges, and the demand in the second half of the year will not be significantly warmed up.

　　The reason why the consumer memory market is facing severe challenges is that the growth rate of PC (personal computer) and mobile phone, which account for the bulk of the demand for memory chips, is far from the market expectation. Yang Yiting, a CFM flash memory market analyst, said: "The storage market in the third quarter has reached a crossroads, the server storage market is generally stable, and the consumer storage market is obviously under pressure."

　　The marketing manager of a storage manufacturer in South China said: "Now, we are only cautious about the market outlook, neither optimistic nor pessimistic. AI may not be the savior of storage for the time being."

AI strong drive

　　The first reason for the strong recovery of the memory chip market this year is the "low starting point".

　　Since the second half of 2022, the demand for consumer electronics has been weak, which has caused the storage market to fall into the "quagmire" of imbalance between supply and demand. The prices of NANDFlash and DRAM have fallen for four consecutive quarters since the third quarter of 2022, which caused many storage enterprises to suffer huge financial losses from 2022 to 2023. "Lack of terminal demand" is the common reason for the losses mentioned by these enterprises in the earnings conference call.

　　In Yang Yiting’s view, the storage industry naturally has a strong cycle. In the storage adjustment cycle started in the second half of 2022, the demand for consumer electronics was weak, and the market situation of oversupply caused the storage price to fall endlessly. The original storage factory faced the double pressure of sustained losses and idle capacity.

　　Yang Yiting said: "The original storage factory tried to rebalance the relationship between supply and demand by reducing production, but the reduction of production was time-limited and could not quickly alleviate the imbalance between supply and demand. As a result, the original storage factories have changed their attitudes, are unwilling to ship at low prices, and tighten supply, which has strongly boosted prices. The market structure has changed from competing for market share to restoring profitability. "

　　So after a series of "self-help" measures such as cutting capital expenditure, continuously reducing production, raising prices and clearing inventory, the market of memory chips began to pick up from the third quarter of 2023.

　　"In the first half of this year, the cumulative increase in the price of memory chips exceeded 40%, which shows that suppliers are strongly pushing up the price increase, which is intended to reverse the loss situation." Ao Guofeng, a senior analyst at TrendForce Jibang Consulting, said.

　　Yang Yiting also said: "In the first half of 2024, terminals such as mobile phones, PCs and servers were highly motivated to stock up, and the upstream storage factory optimized its inventory to improve its profitability. The overall supply and demand of the market were in a tight balance, so the storage market showed a comprehensive increase in volume and price in the first half of the year."

　　She said that at present, the new storage demand driven by AI mainly comes from the field of AI servers, which need to be equipped with high-performance and high-capacity HBM, DDR5 and eSSD (enterprise solid state drives). The DDR5 capacity of AI server is more than three times that of traditional server DRAM, while the HBM capacity of AI server is getting higher and higher. For example, B200 (AI training chip introduced by NVIDIA Company) is equipped with eight 141GB HBM 3Es, with a total capacity of 192GB, which is 36% higher than that of the previous generation H200. In addition, the AI server also actively uses QLCeSSD to accelerate the replacement of HDD (mechanical hard disk) to optimize the total cost and operational efficiency of the AI server.

　　"With the expansion of SSD applications in AI, the demand for enterprise-level SSD orders is in short supply, and the average price increase in the first three quarters of this year exceeded 20%." Yan Guofeng said.

　　This kind of "supply in short supply" brought by AI has now been truly reflected in the financial reports of storage vendors. For example, in the second quarter of this year, Samsung Electronics’ sales revenue of NANDFlash and DRAM reached US$ 6.141 billion and US$ 9.686 billion respectively, up by 13.8% and 24.7% respectively. The management of the company said in the earnings conference call: "The expansion of investment in artificial intelligence by ultra-large-scale customers has not only driven the strong demand for HBM, but also promoted the demand for traditional DRAM and solid state hard disk (SSD). The sales growth of HBM, DDR5 and other high value-added products for artificial intelligence, coupled with the improvement of overall prices, promoted a significant increase in profit in the second quarter compared with the previous quarter. "

　　Zhang Chi told the Economic Observer: "In the future, the scale of the AI server market will be about ten times that of mobile phones and computers, and the demand for storage in the construction of data centers will far exceed the consumer market. A server needs to be equipped with hundreds of memory chips, which is much more than mobile phones and computers. "

　　In Yang Yiting’s view, the long-term driving trend of AI to the growth of storage demand is certain, and there is a trend of deep integration between AI big model and cloud service. Large cloud service providers are actively investing capital expenditure to build higher barriers to cloud service, while edge devices are also increasing the training and deployment of AI big model.

　　Ao Guofeng emphasized that under the impetus of AI application, the server market will become the main area of flash memory application expansion, and this trend is expected to continue next year.

　　Structural contradiction

　　After storage manufacturers actively reduce production to balance supply and demand and AI brings new growth space, the storage chip industry has the opportunity to move steadily towards a new round of growth cycle. However, since the second half of this year, the price of the storage spot market has been continuously lowered, which has cast a "shadow" on the hard-won recovery of the whole industry.

　　According to CFM flash memory market statistics, the spot price indexes of NANDFlash and DRAM have been falling all the way since hitting the stage high point in May this year, and have now returned to the level at the end of 2023. TrendForce Jibang Consulting also said in a recent research report that the spot price of memory mainly based on consumer products began to weaken, and the price in the second quarter fell by more than 30% compared with the first quarter.

　　The marketing manager of the aforementioned storage manufacturer told the Economic Observer: "The product barriers required by AI servers are relatively high, and the’ cake’ is mainly eaten by overseas head manufacturers. At present, AI has not brought significant demand growth in major markets such as PCs and mobile phones, so we dare not say how good the situation will be this year. We can only take it one step at a time."

　　In the process of interviewing domestic storage manufacturers, the Economic Observer learned that compared with the pursuit of AI computing infrastructure, the practitioners actually hoped for the explosion of AIPC and AI mobile phones at the beginning of the year, but after the thunder of AIPC and AI mobile phones, the "rain" never came down, and the recovery of the consumer electronics market was far less than expected.

　　In Yang Yiting’s view, the domestic consumer market has not yet recovered, and some smartphone brands have begun to lower their sales growth expectations in 2024. At the same time, with the rising price of parts, the hardware cost of mobile phone manufacturers is under great pressure, and some mobile phone manufacturers have begun to reduce the configuration of cameras, screens and storage. In terms of capacity allocation, allocation reduction has become a last resort for major mobile phone brand manufacturers.

　　"DRAM bears the brunt. The high-end models have dropped from 16GB to 12GB, and the low-end models have been withdrawn to 4GB. The sales of low-end models have increased, the sales of high-end mobile phones have decreased, and the overall demand for DRAM has shrunk. The same is true for NAND, which reduces the demand for high-capacity configuration by adjusting marketing strategies. " Yang Yiting further stated.

　　Regarding the PC market, Yang Yiting analyzed that due to the slow recovery of the domestic PC market, the consumer market generally has insufficient acceptance of the excessive rise in storage prices, while the downstream storage manufacturers have a large number of low-priced inventories, so it is difficult for the prices of finished consumer storage products to reflect the changes in the original resource prices in time, and the prices of some storage products have also been upside down.

　　Ao Guofeng said: "The improvement effect of AI on the flash memory capacity of PCs and smartphones may not appear until 2026."

　　But for many storage vendors, they may need to "take risks" and wait for the day when "AI will actually pull the consumer market".

　　According to the financial report data, as of June 30, 2024, the book value of inventory of domestic storage enterprise Jiangbolong (301308.SZ) reached 8.833 billion yuan, accounting for 69.11% of current assets; The book value of inventory of Baiwei Storage (688525.SH) reached 3.577 billion yuan, accounting for 51.87% of its total assets; The book value of inventory of Demingli (001309.SZ) reached 3.38 billion yuan, accounting for 222.58% of the company’s net assets.

　　If the storage market does not continue to improve, these storage manufacturers with high inventory will face the risk of falling inventory.

　　In addition, a new round of capacity "competition" of the original head storage factory has also started. For example, the management of Micron Technology said in the financial report conference call from March to May, 2024: "We expect that the capital expenditure will increase substantially next year, and the capital expenditure in fiscal year 2025 will account for about 30% of the revenue, which will be used for the construction of HBM assembly and test equipment, fabs and back-end facilities, and technological transformation investment to cope with the growth of market demand. The company plans to build new fabs in Idaho and new york in fiscal year 2025, which will account for half or more of the expected total capital expenditure growth. "

　　In this regard, Yang Yiting said that in the short to medium term, the challenges faced by the storage market come from the pressure of capacity release from the supply side. As the original storage factory realizes profitability and begins capacity expansion, the overall capacity growth of the industry has reached a key node that cannot be ignored, and the game between the supply side and the supply side, and between the supply side and the demand side is intensifying.

　　She said: "In the second half of the year, the structural problems of supply and demand are more obvious, which is manifested in the more stable supply of server storage, while the supply of some consumer storage is growing too fast, which will make the supply side have to make a difficult choice between profit and share."