Why has the price of memory chips risen again and again?

Recently, it was reported that Samsung Electronics has notified major customers including Dell Technologies and Hewlett Packard Enterprise (HPE) of its price increase plan, and is ready to increase its main memory semiconductor, server DRAM and enterprise NAND flash memory quotations by 15%~20% in the third quarter, while Samsung has increased the price of its enterprise NAND flash memory by more than 20% in the second quarter.

This is Samsung's third price adjustment this year. What is the reason for this price increase?

According to TrendForce's Q1 2024 global DRAM company revenue data, Samsung, SK hynix, and Micron are among the top three with a share of 44%, 31%, and 22% of the global memory market, respectively, with the three accounting for almost 95% of the global market share. DRAM is the largest product type shipped in the storage market, and the revenue gap between these three companies and other companies is also very large in terms of memory categories. The storage market has distinct oligopoly characteristics. In such a situation, the actions of these three companies will directly bring about the shock of the entire storage market, and even the entire electronics industry chain related to it.

Q1 2024 Global DRAM Fab Private Label Memory Revenue Ranking (in USD millions)

Source: TrendForce, compiled by China Electronics News

Three original storage factories have reduced production and raised prices

For a long time, adjusting market prices by regulating production capacity has been the usual means of these three companies. And this method is also vividly demonstrated in the latest price fluctuations of storage products.

The chip shortage that began in the second half of 2020 has led to a large number of stock stocks of Samsung, SK hynix, and Micron, so that after the growth of global storage demand peaked, the three original storage factories are facing extremely high inventory levels.

Against this backdrop, the prices of the world's three largest storage OEMs have fallen for eight consecutive quarters starting from the fourth quarter of 2021. According to TrendForce, DRAM prices began to drop by 3%~8% in Q4 2021 and continued to decline to reach the highest single-quarter drop of 20%~25% in Q4 2022.

Source: TrendForce, compiled by China Electronics News

Affected by the decline in storage prices, the revenues of Samsung, SK hynix, and Micron have been hit. Since the second quarter of 2022, Samsung's revenue has declined for 5 consecutive quarters, and by the second quarter of 2023, the revenue is equivalent to 71.74% of the first quarter of 2022; Revenue and profit have dropped sharply, from $11.724 billion in the first quarter of 2022 to $502 million in the first quarter of 2023, a year-on-year decrease of 95.72%. Micron and Hynix's revenue was also "cut in half" within a year, and even suffered an operating profit loss. Micron's revenue has declined for three consecutive quarters since the third quarter of 2022, and has fallen to $3.693 billion in the second quarter of 2023, and its revenue profit has fallen from $3 billion to -$2.3 billion. SK hynix's revenue fell from 10.98 trillion won (about 8.664 billion US dollars) in the third quarter of 2022 to 5.09 trillion won (about 3.994 billion US dollars) in the first quarter of 2023, and the revenue profit also fell from 4.19 trillion won (about 3.402 billion US dollars) in the second quarter of 2022 to -3.402 trillion won (about -2.669 billion US dollars) in the first quarter of 2023.

In order to digest inventory as soon as possible and get rid of the loss situation, the three major storage manufacturers invariably began to reduce production. Samsung Electronics said that in the fourth quarter of 2023, the company's capital expenditure decreased by 25.53% year-on-year to 14.0 trillion won (about 10.719 billion U.S. dollars), SK hynix said that the company's capital expenditure in 2023 decreased by 50% year-on-year to 9.5 trillion won (about 7.273 billion U.S. dollars), and Micron announced production cuts for the first time in November 2022 and gradually expanded the production cuts. The reporter of "China Electronics News" tracked and found that the above-mentioned enterprise production reduction measures continued throughout 2023.

The effect of production cuts is intuitively reflected in the company's inventory, storage prices and revenue. Micron CEO Sanjay Mehrotra said in his 2023 earnings note that customer inventories have gradually returned to normal levels.

At the end of 2023, the three major storage plants have successively announced that they will increase the contract price in the first quarter of 2024. A reporter from China Electronics News interviewed a domestic agent and learned that the market demand was not strong at that time, which was not enough to support price growth. At that time, the price increase was mostly caused by the three storage factories taking the initiative to adjust prices.

The price increase comes from a surge in demand from HBM

Recently, in addition to Samsung, two other major storage manufacturers have also frequently reported price increases. SK hynix announced in May that it would raise the prices of its LPDDR5, LPDDR4, NAND, DDR5 and other products, all of which will increase by 15%~20%. According to sources, the price of Hynix's DRAM products has been raised month by month since the fourth quarter of last year, and has risen by about 60%~100% cumulatively, and the increase will slow down in the second half of the year. In April, Micron had asked most customers to raise its second-quarter product quotations, an increase of more than 20%, but the quotations were subsequently suspended due to the earthquake in Taiwan, China.

The reporter of "China Electronics News" learned from an interview that the reason for the increase in product quotations by Samsung and other major storage manufacturers is different from the reason for the price increase of storage products at the end of last year. The price increase of memory products reported at the end of last year was, to a certain extent, due to the fact that the original memory chip manufacturers took the initiative to reduce production and control prices, and the market demand has not yet reached the level of driving the price increase of memory across the board. This round of price increases is largely driven by market demand.

Sheng Linghai, vice president of Gartner, said in an interview with China Electronics News that the recent increase in storage prices is largely due to the surge in demand for HBM. Semiconductor veteran Li Guoqiang also expressed a similar view to reporters: "Samsung's price increase at the end of last year was partly due to the factors brought about by the company's initiative to reduce production in the early stage, and the storage company raised the price of its products because AI's demand for hardware is reflected in HBM products." ”

Regarding the demand growth brought by AI to the storage segment, Sheng Linghai made a further interpretation. He believes that in terms of NAND Flash, large models have high requirements for fast reading, which drives the demand for SSDs. In addition, HBM is facing a market situation where supply exceeds demand, and manufacturers may shift some of their DRAM production capacity to HBM, but the current HBM capacity increase is mainly limited by the technical bottleneck of advanced packaging, so the capacity shortage may not be effectively solved in the short term.

In addition to the growth of demand for HBM, the demand for popular memory such as mobile phones and new energy vehicles also plays a certain role. Li Guoqiang said that on the one hand, mobile phone shipments are increasing, and the demand for mobile DRAM and NAND Flash capacity is also increasing. On the other hand, new energy vehicles and autonomous driving functions have also increased the demand for DRAM.

In the interview, the reporter learned that under the current trend of market recovery, storage manufacturers have begun to gradually restore production capacity. At present, the capacity utilization rate of the original storage plant is nearly 90%, which is more than 10% higher than last year, but has not yet reached the maximum value.

The world's best-selling "Made in China" adds luster to industrial growth Promoting the steady growth of the industrial economy: Mid-year observation

went to the United States to build a factory, TSMC Samsung made a wedding dress for whom

Author丨Ji Xiaoting, Wu Xiuqi Editor丨Zhang Xinyimei, Editor丨Maria Producer丨Lian Xiaodong