- Reducing memory prices alone is not enough to return demand to growth.
- Profits of many memory manufacturers fell in the first quarter, and some of them suffered losses.
- Some experts are now expressing concern that memory prices will not return to growth this year.
Based on the results of the first quarter, Samsung faced a two and a half times decrease in profits, and against this background it was forced to warn shareholders and investors in advance about this phenomenon. Samsung's flagship smartphones sold well, but the rapidly falling price of memory spoiled financial statistics. The typical reaction of memory manufacturers to the overproduction crisis is to reduce production volumes. The Korean giant expects the decline in NAND memory prices to stop in the second half of this year.
SK Hynix faced a 65% decline in net profit, and the average selling price of NAND memory decreased by 32%. The Korean manufacturer had to decide to optimize the range of produced memory in order to stop the production of less profitable memory chips. The commissioning of new production facilities has been postponed until the second half of the year. However, these measures will only reduce the production volume of silicon wafers with NAND memory by 10% compared to last year.
Micron in March of this year shared optimistic forecasts, according to which supply and demand in the memory market should reach an equilibrium state by August of this year. The company has been living in conditions of austerity for a long time, this allowed it to receive revenue above the forecast level, although here there was a noticeable decrease compared to the same period last year.
Western Digital Corporation, which inherited SanDisk's manufacturing assets, ended the first quarter with a loss, although its hard drive business performed better than expected. The profit margin for solid-state memory production fell over the year from 55% to 21%. The company announced plans to reduce solid-state memory production volumes by up to 15% by the end of the year, but expressed timid hopes that in the industry as a whole, memory production volumes will grow by more than 30% by the end of the year.
Solid-state memory prices will only slow down in the second half of the year
As noted by the resource With reference to industry sources, the optimism of market participants regarding the possibility of growth in demand for NAND memory is not very appropriate. It is widely believed that in the second half of the year the demand for memory used in smartphones will increase, and the demand for memory for server applications will increase.
NAND prices will not return to growth in the second half of the year, the source claims. They have already reached a level bordering on cost for many manufacturers. In the first quarter, at least, we saw across the board how profit margins in the NAND segment of the major market players dropped to 15% or 20%. If prices continue to fall this quarter, it would be more appropriate to talk about losses rather than profits.
There are also no conditions for a revival of demand for memory from the global server market. The situation is aggravated by the worsening trade tensions between the United States and China. According to Taiwanese sources, the fall in prices for solid-state memory may stop in the second half of the year if demand from American companies operating data centers returns to growth in June or July.
Even if the decline in prices for NAND memory continues in the second half of the year, according to the president of Silicon Motion Technology, it will be measured in single-digit percentages - in fact, it will slow down noticeably relative to the first half of the year.
DRAM theater: it’s too early to rejoice here, experts say
As noted by the resource with reference to comments from Cowen analysts, you should not count on a trend reversal in RAM prices in the second half of the year. In their opinion, the cycle of changes in supply and demand for memory has not yet ended, and prices have not reached the bottom. Having studied the size of April memory stocks in the industry, the authors of the forecast claim that they are still too large for a “turnaround” this year. The third calendar quarter may be especially difficult for the industry.
Using the example of Micron's stock price, Morgan Stanley experts voice an even more pessimistic forecast. They believe that RAM prices will not return to growth not only this year, but also next year. By mid-year, they expect memory inventories to exceed a 25-year high. Accordingly, Micron will not be able to increase revenues until August 2020 inclusive, when the company’s fiscal year ends on the company’s calendar.
Experts back at the end of March they warned that the sharp decline in prices for RAM in the first quarter was not capable of ensuring a recovery in demand, and it was better not to wait for the depletion of warehouse surpluses until the third quarter. They also predicted that the decline in RAM prices would slow down in the third quarter.
Source: 3dnews.ru