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In the past two years, the memory chip market has experienced a roller coaster of ups and downs. First, supply exceeded demand, and prices fell to a record low. Then they continued to rise, and the price increase trend has continued for a year.

According to a research report by TrendForce, driven by AI-driven HBM and QLC, the annual revenue growth of the DRAM and NAND Flash industries is expected to increase by 75% and 77% respectively in 2024. It is expected that by 2025, the revenue of the DRAM and NAND industries will increase by 51% and 29% respectively.

Behind the continuous rapid growth, there is the constant adjustment of the supply and demand relationship of memory chips, as well as new demands coming along with the AI ​​wave.

From big fall to big rise, memory chips are on a roller coaster ride

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In fact, before this round of "enormous wealth", the memory chip industry had gone through a long period of lows.

As early as 2020, when the epidemic just started, due to the global chip shortage, many manufacturers misjudged the epidemic and the situation and stockpiled a large number of chips. The end result was that supply exceeded demand, and memory chips became a huge inventory pressure for manufacturers. Therefore, from 2022 to the first half of 2023, the price of memory chips remained low.

Jeffrey Mathews, senior analyst at Strategy Analytics' Mobile Component Technology Service, pointed out that as the demand side began to decline in 2022, the market was oversupplied. The oversupply in the market strongly drove the downward cycle, which was the main reason for the price reduction of DRAM and NAND at that time.

But soon, upstream manufacturers adjusted their production capacity strategies and supply and demand relationships. At that time, at the Q2 2023 financial report meeting, Samsung announced that it would continue to cut the production of NAND Flash-based storage chips in the second half of the year. SK Hynix announced that it would continue to reduce NAND Flash production by 5-10% in the second half of the year. Micron expanded the number of NAND Flash wafers from the previous 25% reduction to a 30% reduction. Kioxia has implemented a 30% production cut since Q4 2022, and the production cut in 2023 has been expanded to 50%.

Starting from mid-2023, the price of memory chips began to soar due to upstream production cuts, and the prices of some products doubled within a year.

Xu Qi, global vice president of Realme and president of China, told Titanium Media APP in an exchange in April 2024 that the rising prices in the supply chain in 2024 put great pressure on manufacturers, among which the trend of rising flash memory prices was particularly obvious.

From a financial perspective, major storage manufacturers have made a lot of money in this round of price increases. Hynix's second quarter financial report for fiscal year 2024 showed that its revenue in the second quarter was 16.4 trillion won (about 11.8 billion U.S. dollars), up 125% from the same period last year, the highest record for a single quarter, and its net profit was 4.12 trillion won, up 115% from the first quarter. Samsung's profit in the first quarter increased 9 times year-on-year, exceeding its total profit in 2023. Micron expected to turn losses into profits in the first quarter in advance.

Previously, TrendForce research estimated that the rise in memory chip prices may continue until the first quarter of 2024. However, as of mid-2024, this rise has not shown any signs of stopping.

AI takes over, HBM drives the continued growth of storage chips

According to the global smartphone and PC market report released by IDC, by the second quarter of 2024, global smartphone shipments have achieved four consecutive quarters of positive growth, and PC shipments have also achieved two consecutive quarters of positive growth. It should be said that from the perspective of supply and demand, the global recovery of smartphones and PCs has given sufficient confidence to the upstream.

But more importantly, with the rise of a new round of AI wave led by ChatGPT, the demand for storage chips from massive servers has increased dramatically, and the upper limit of this demand has become difficult to estimate.

Starting from 2023, with the arrival of a new wave of artificial intelligence, new demands have also emerged in the memory chip industry. For a period of time, the computing power of AI servers can easily break T (TOPS, trillion operations per second), but the memory bandwidth cannot break T (TB/s, trillion bytes of bandwidth per second), which makes memory chips the short board of the barrel effect on the AI ​​link, and the so-called "storage wall" appears in the industry.

Image source: SK Hynix

Compared with traditional GDDR and LPDDR, HBM is also a category of DRAM (dynamic random access memory), but it has significant high bandwidth, large capacity, and low latency. In the competition with similar products, HBM quickly defeated similar products with its speed advantage and became the common choice of the current AI industry.

HBM was first released in 2013, and its latest generation product HBM3E was released in August 2023 and will be available at the end of March 2024. According to SK Hynix, the product can process up to 1.18TB (terabytes) of data per second, which is equivalent to processing 230 FHD full HD movies in 1 second.

Currently, the main manufacturers of HBM are only the three traditional memory chip giants, namely SK Hynix, Samsung and Micron. SK Hynix is ​​currently in the leading position, Samsung is second, and Micron is third.

According to TrendForce, the DRAM industry's revenue will reach US$90.7 billion in 2024, of which HBM will contribute 5% to DRAM bit shipments and 20% to revenue.

But from the current point of view, the existing production capacity of the three companies cannot meet the surging demand for HBM. Micron CEO Sanjay Mehrotra revealed at the end-of-2023 financial report meeting that its 2024 HBM production capacity is expected to be sold out; SK Hynix Vice President Kim Ki-tae also said that the HBM to be produced in 2024 has been sold out.

In order to continue HBM's business growth, the giants chose to increase investment and expand production.

First, in April this year, SK Hynix announced that it would invest approximately US$3.87 billion to build an advanced packaging plant and AI product R&D facility in Indiana, the United States. Then on July 26, SK Hynix announced that it would invest approximately 9.4 trillion won (approximately US$6.8 billion) to build the first local chip factory in Yongin, South Korea, with construction starting in March 2025 and completed in May 2027. Regulatory documents show that this investment is aimed at meeting the demand for AI chips and ensuring future growth.

Yole Group's latest analysis report shows that as demand for artificial intelligence servers exceeds other applications, HBM's share of total DRAM shipments is expected to rise from about 2% in 2023 to 6% in 2029. Since HBM is much more priced than DDR5, its share in terms of revenue is expected to climb from US$14 billion in 2024 to US$38 billion in 2029.

It is worth noting that, apart from SK Hynix, Samsung and Micron, no other manufacturers can mass-produce HBM products, which has caused Chinese scholars to express concerns. Huang Letian, deputy director of the Integrated Circuit and System Research Center of the Yangtze River Delta Research Institute (Huzhou) of the University of Electronic Science and Technology of China, said: "It's like a gun. If the supply of bullets can't keep up, it's useless no matter how fast the firing rate is. If the HBM problem cannot be solved, it will be difficult for my country to improve its computing power, and the development of many industries including artificial intelligence will be restricted."

In March this year, Wuhan Xinxin Integrated Circuit Manufacturing Co., Ltd. launched the "High-bandwidth Memory Core Advanced Packaging Technology Research and Development and Production Line Construction" bidding project, using 3D integrated multi-wafer stacking technology to create domestic high-bandwidth memory (HBM) products with higher capacity, greater bandwidth, lower power consumption and higher production efficiency. It plans to add 16 sets of equipment and achieve a monthly output capacity of >3,000 pieces (12 inches).

Guosheng Securities believes that Wuhan XMC's announcement of this round of bidding indicates that Yangtze Memory or other potential customers have the ability to manufacture DRAM products, which will greatly boost domestic industrialization confidence.(This article was first published on Titanium Media APP, author: Wu Honglei, editor: Zhong Yi)