on september 19, the share price of south korean memory chip maker sk hynix plummeted in the seoul stock market, leading the decline of its semiconductor peers. this was due to a report from morgan stanley, a major wall street bank.

morgan stanley recently downgraded sk hynix's stock rating by two levels, from "overweight" to "underweight", and lowered its target share price from 260,000 won (about us$200) to 120,000 won, citing the belief that the company's pricing power is weakening.

morgan stanley pointed out that among the global memory chip manufacturers, the stock is currently the least favored. on the same day, other semiconductor stocks listed in seoul were also affected, such as hanmi semiconductor, which fell 8.2%, and samsung electronics, which fell 3.4%.

morgan stanley's bearish view on the future development of the memory industry has attracted great attention in the memory industry, and industry insiders have different views. on the one hand, some industry insiders said that hbm is produced only after customer approval, and sk hynix and samsung have both announced that the company's hbm product production capacity in 2025 has been sold out, and "there is no problem of oversupply." on the other hand, many industry insiders have expressed concerns: the sweetness of memory chips has only been tasted for a few days, and this wave of enthusiasm is about to pass?

as for the future trend of the storage market, it needs to be analyzed from many aspects.

01

institutional views

regarding the trend of the storage market in the coming period of this year, many domestic and foreign research institutions believe that the current storage market performance is not optimistic.

morgan stanley: issue a warning

the reason for morgan stanley's series of share reduction actions is that the reduction in demand for smartphones and pcs has led to a decline in demand for general-purpose dram, and an oversupply of high-bandwidth memory (hbm), leading to a drop in prices.

first, let’s look at the supply and demand of hbm. as we all know, hbm is an important supporting component for ai.

from the demand sidethe report predicts that 10 large technology companiesaithe investment growth rate will drop sharply from 52% this year to 8% next year, while bloomberg predicts that the ai ​​investment growth rate of 13 large technology companies will be 33.7% this year and 13.4% next year. it can be clearly seen that the hbm demand brought by ai next year will not be as strong as this year, and the demand is shrinking significantly.

from the supply sidemorgan stanley estimates that next year, memory manufacturers' hbm supply will reach 250 billion gb, exceeding demand (150 billion gb) by 66.7%, and predicts thatsamsung electronicsa full-scale entry into the hbm market will be the main cause of oversupply.

the supply has increased, but the demand has decreased. it seems that the oversupply of hbm is not groundless.

let’s look at the supply and demand situation of general-purpose dram.morgan stanley said that the memory industry has completed a full cycle, and the cyclical condition of dram may reach a plateau in the fourth quarter of 2024. although ai demand remains relatively strong, traditional terminal markets have deteriorated or remained weak in recent weeks, which has led to a decline in price expectations. initial signs currently indicate that the pricing environment will be more challenging in the fourth quarter of 2024 and a trend reversal will occur in 2025.

morgan stanley believes that the sell signal has appeared.the next cyclical downturn will begin in 2025, and dram will continue to be oversupplied until 2026, and inventory accumulation has exacerbated the situation.nand capacity spending remains relatively healthy in 2025.however, nand and dram cyclicality tend to move somewhat in sync due to similar end-market exposure and overlapping customer bases.

morgan stanley also warned about the development of the current storage market: once the current dram cyclical momentum fades, sk hynix may be left with a deteriorating nand business. coupled with the upside risks of normalization of production and the sharp increase in dram and hbm capital expenditures, the risks after 2024 may be underestimated.

trendforce: global consumer memory market faces severe challenges

trendforce also recently released a research report stating that in the second quarter of 2024, the shipment volume of storage module manufacturers in consumer nand flash retail channels has dropped by 40% year-on-year.

to be precise,the memory chip market is undergoing a segmented transformation, with the consumer memory market under pressure and demand for professional memory strong.this situation not only shows that the global consumer memory market is facing severe challenges, but also reveals that the demand for ai servers has become the main driving force of the storage market.

the strong recovery of the memory chip market this year is primarily due to the “low starting point”.

the continued weakness in demand for consumer electronics in 2022 has led to an imbalance in supply and demand in the storage market, and has also triggered a continuous decline in the prices of nand flash and dram. at that time, many storage companies suffered huge losses between 2022 and 2023. storage manufacturers tried to reverse the situation by reducing production and raising prices, and thus entered a long cycle of repairing the supply and demand relationship. in addition, the rise of ai technology has also brought new hope to the storage market. in this way, after a long period of adjustment, the storage market has gradually entered a healthy growth trend.

however, ai may not necessarily be the "savior" of the storage industry.

cfm flash market: consumer storage market is under clear pressure

since the second half of this year, prices in the storage spot market have continued to decline. according to cfm flash market statistics, the nand flash and dram spot price indexes have been falling since they hit a stage high in may this year, and have now returned to the level at the end of 2023.

this is mainly because the consumer electronics market has not fully released its due market demand.

yang yiting, a flash memory market analyst at cfm, said that on the one hand, the shipment of smartphones is lower than expected, and on the other hand, with the rising prices of components, mobile phone manufacturers are under great pressure on hardware costs, and some mobile phone manufacturers have begun to downgrade the configuration of cameras, screens, storage, etc. in terms of capacity configuration, downgrading has become a last resort for major mobile phone brand manufacturers.

among them, dram was the first to be affected, with high-end models reduced from 16gb to 12gb and low-end models withdrawn to 4gb. in addition, the sales of mid- and low-end models increased, while the sales of high-end mobile phones decreased, shrinking the overall demand for dram. the same is true for nand, which has reduced the demand for high-capacity configurations by adjusting marketing strategies.

regarding the storage market situation in the third quarter of this year, yang yiting said that the storage market in the third quarter has reached a crossroads. the server storage market is generally stable, while the consumer storage market is under obvious pressure.

after understanding the opinions of these institutions, we can take a look at the actual market situation.

02

memory chips, how is the market situation?

judging from the latest performance reports released by domestic memory chip manufacturers recently, they have not been affected by the so-called "cold air". although domestic memory manufacturers focus on consumer electronics, in the latest first half performance reports released, these companies have achieved good profit performance, and the hot trend remains, with no signs of decline.

in the first half of the year, the a-share memory chip listed companies had a high growth overall, with the net profit of 25 companies increasing by 146.26% year-on-year. lanqi technology, jiangbolong, biwin storage, demingli, and gigadevice all performed well.

in the first half of the year, lanqi technology achieved operating income of 1.665 billion yuan, a year-on-year increase of 79.49%; net profit was 593 million yuan, a year-on-year increase of 624.63%. in the first half of the year, jiangbolong achieved operating income of 9.039 billion yuan, an increase of 143.82% over the same period last year; net profit was 594 million yuan, a year-on-year increase of 199.64%. in the first half of the year, bivi storage achieved operating income of 3.441 billion yuan, a year-on-year increase of 199.64%; net profit was 283 million yuan, turning losses into profits year-on-year. in the first half of the year, gigadevice achieved operating income of 3.609 billion yuan, a year-on-year increase of 21.69%; net profit was 517 million yuan, a year-on-year increase of 53.88%.

specifically for product prices, rising prices of storage components will have a positive performance impact on listed companies whose main business is storage chips, and vice versa. therefore, it is also necessary to pay attention to changes in wafer prices on the cost side and the production and sales situation of each company.

from the table, we can see that the price of emmc and ufs has fallen, which may be due to the oversupply caused by the weak demand for consumer electronics. flash prices have risen and fallen, reflecting the differences in demand in different application scenarios. ddr4 has fallen slightly, which may be affected by technology upgrades. ssd prices are stable but fell monthly, reflecting the fierce market competition. overall, it reflects the dynamic changes in supply and demand in the storage market and the impact of different applications.

the weekly change of nand index was -2.84%, and the monthly change was -5.08%, which was a relatively obvious decline. this may be due to the increase in supply of nand flash memory market and the relatively slow growth in demand. in the field of consumer electronics, such as smartphones and tablets, the continuous increase in storage capacity has made the supply of nand flash memory relatively sufficient. at the same time, technological progress may also lead to a decrease in production costs, further driving down prices.

the weekly change of the dram index was -1.75% and the monthly change was -3.86%. the dram market is also affected by the increase in supply and the relative lack of demand. the demand for dram in the fields of computers and servers is relatively stable, but with the continuous upgrading of technology, the performance of dram is also constantly improving, which may lead to a decrease in the price of old products. at the same time, new production technologies and increased production capacity may also put pressure on prices.

the upstream wafer prices have all fallen. on the supply side, the increase in production capacity may lead to oversupply. on the demand side, the application fields such as consumer electronics have grown slowly. as the basis of storage and other products, the price fluctuations of wafers affect the industrial chain.

03

how do storage companies respond to this change?

in a recent institutional survey, longsys said that after experiencing a wave of sharp increases in storage prices from the end of 2023 to the early second quarter of 2024, it will be difficult to generalize storage prices in the future, but will show a structural differentiation trend based on different application scenarios. all original equipment manufacturers are working hard to shift their production capacity to the high-value product field in the server market.

wu yating, an analyst at trendforce, said that memory module manufacturers began to actively increase dram inventory after the third quarter of 2023, and the inventory level has risen to 11-17 weeks by the second quarter of 2024. however, the demand for consumer electronics has not recovered as expected. for example, the smartphone sector has seen excessive inventory of complete machines, and the notebook computer market has also delayed purchases because consumers are looking forward to new aipc products. in this case, the spot price of memory, which is mainly consumer products, has begun to weaken, and the global consumer memory market is facing challenges.

this also means that storage companies cannot blindly cater to the positive trends in the first half of the year. in the process of differentiation in the storage chip market, whether companies can properly deal with possible inventory and production capacity risks, especially the potential price decline risks brought about by high inventory, are important moments to test their strategic layout.

financial report data shows that as of june 30, 2024, the book value of inventory of domestic storage company jiangbolong reached 8.833 billion yuan, accounting for 69.11% of current assets; the book value of inventory of biwin storage reached 3.577 billion yuan, accounting for 51.87% of its total assets; the book value of inventory of demingli reached 3.38 billion yuan, accounting for 222.58% of its company's net assets.

if the storage market fails to continue its recovery in the future, storage manufacturers with serious inventory backlogs may face the crisis of inventory value depreciation and face heavy pressure from the "shadow of price decline."

in general, the memory chip industry may see differentiation and an imbalance between supply and demand.

in this case, domestic storage companies need to make good preparations for and innovate technology, continue to invest in research and development, and promote the advancement of storage technology, such as developing new storage media, increasing storage density, and reducing costs. for example, they can explore emerging storage technologies such as phase change storage and ferroelectric storage, and only by being well prepared can they hope to stand out one day.