Demand for NAND Flash products will undergo a noticeable and cyclical downward correction in 1Q22 as major smartphone brands wind down their procurement activities for the peak season and ODMs prepare for the New Year holidays, according to TrendForce’s latest investigations. As such, the NAND Flash market will remain in an oversupply situation, with prices continuing to undergo downward corrections accordingly. However, PC OEMs have been reinstating certain orders for client SSDs since early November in response to improvements in the supply of upstream semiconductor materials. By fulfilling these orders, suppliers are able to keep their inventory level relatively low, meaning they are not under as much pressure as previously expected to reduce inventory by lowering prices. Taking these factors into account, TrendForce expects NAND Flash ASP to undergo a 10-15% QoQ decline in 1Q22, during which NAND Flash prices will experience the most noticeable declines compared to the other quarters in 2022.

Regarding the price trend of NAND Flash products across the whole 2021, TrendForce further indicates that suppliers have actively transitioned their output to higher-layer technologies, resulting in a bit supply growth that noticeably outpaces demand, though the tight supply of components such as controller ICs and PMICs has constrained the production of NAND Flash end-products. Hence, the decline in contract prices of NAND Flash products has not been as severe as previously expected. Moving ahead to 2022, however, the supply of relevant components is expected to gradually improve, so the market for various NAND Flash products will also likely shift towards a noticeable oversupply. As a result, prices of NAND Flash products will steadily decline before the arrival of the peak season in 3Q22.

Client SSD prices will maintain a downward trajectory in 1Q22, by about 5-10% QoQ

While PC OEMs aggressively push out shipments in 4Q21, demand also remains strong for commercial notebooks, in turn propelling the overall volume of notebook production for 4Q21 to 3Q21 levels, surpassing prior expectations. Moving into 1Q22, however, notebook demand from the consumer segment and education segment is expected to moderate, and client SSD buyers’ procurement activities for the quarter will therefore become more conservative. Suppliers, on the other hand, continue to shift the bulk of their client SSD output to 128L and higher layer products as they release the next generation of client SSDs to both capture market share and increase the consumption of these higher-layer products. The average storage capacity of client SSDs will expand to 567GB next year, with WD releasing QLC products alongside existing QLC manufacturers Intel and Micron, in turn intensifying suppliers’ pricing competition. TrendForce therefore expects contract prices of client SSDs to maintain their existing downward trajectory and undergo a 5-10% QoQ decline in 1Q22.

Prices will decrease by about 3-8% QoQ for PCIe enterprise SSDs but hold flat for SATA enterprise SSDs

North American hyperscalers saw their inventory levels rising throughout the fourth quarter as their production capacities for servers were negatively affected by component gaps. In addition, some of these issues are expected to persist in 1Q22, so server shipment for the 4Q21-1Q22 period will experience continued declines, thus putting downward pressure on the growth of enterprise SSD bit demand. As for the supply side, not only has the issue of insufficient PMIC production capacity become gradually alleviated, but hyperscalers have also cut down on their enterprise SSD orders somewhat due to their focus on inventory reduction. Hence, the production capacities for enterprise SSDs with PCIe interface have slowly returned to normal, and room for price negotiations with suppliers is also beginning to surface. Regarding enterprise SSDs with SATA interface, their supply has become relatively tight because manufacturers prioritize the production of high-density PCIe SSDs over SATA SSDs, which feature an older interface and lower density. As such, contract prices of SATA SSDs are unlikely to drop. For 1Q22, TrendForce forecasts an overall 3-8% QoQ decline in enterprise SSD prices, with contract prices of SATA enterprise SSDs mostly holding flat and prices of PCIe products declining by 3-8% QoQ.

eMMC prices will decrease by 5-10% QoQ

TVs, Chromebooks, and other categories of consumer products that carry eMMC solutions have been experiencing sluggish demand in the second half of this year as related subsidies and tenders in the US wind down. The seasonal fluctuations of the demand for consumer products will return to the pre-pandemic pattern next year. Chromebook production is forecasted to show a small rebound in 1Q22 and climb to the year’s peak in 2Q22 in accordance with the traditional seasonal pattern. Even so, the annual total Chromebook production for 2022 will still register a significant decline from the previous year. Turning to TV production, a QoQ decline is projected for 1Q22. Taking account of these demand-related projections, TrendForce expects the demand for eMMC solutions to be fairly weak in 1Q22. The overall production capacity for low-density 2D NAND Flash products has remained relatively constant. Some suppliers continue to scale back 2D NAND Flash production capacity, but they have slowed down the pace of reduction. Regarding the price trend of eMMC solutions, it is now adjusting downward to a stable level after the surge in 2Q21. TrendForce forecasts that contract prices of eMMC solutions will drop again by 5-10% QoQ for 1Q22.

UFS prices will decrease by 8-13% QoQ due to rising supply and falling demand

Component gaps in the upstream sections of the supply chain are still a serious issue affecting smartphone brands’ device production. Despite the contribution from the traditional peak shipment season in the second half of the year, the YoY growth rate of the total smartphone production in 2021 is expected to once again fall short of earlier projections. Looking ahead to 1Q22, Apple is expected to scale back its smartphone-related demand due to seasonality. This, in turn, will negatively affect NAND Flash suppliers’ bit shipments and further weaken mobile storage demand as a whole. The latest examination of product shipments from NAND Flash suppliers indicates that 1XX-L technologies are now mainstream, and 1YY-L technologies will gradually be adopted during 1H22. Micron has skipped 128L in its stacking technology migration and thereby advanced from 96L directly to 176L. To lower production cost and raise bit output, suppliers continue to increase the layer number of their 3D NAND technologies. This means that supply growth will further outstrip demand growth in 1Q22 as the off-season sets in. Hence, TrendForce forecasts that prices of UFS solutions will also register steeper QoQ declines of 8-13% for 1Q22.

NAND Flash wafer prices will decrease by 10-15% QoQ as oversupply becomes more severe

Sales of retail storage products such as UFDs and memory cards have been weak through this entire year. The promotional activities initiated by e-commerce companies for the special events and festivals near the end of the year have generated only a marginal amount of demand. Looking ahead to the early part of 2022, the demand for retail storage products is not expected to gain noticeable momentum before the arrival of Lunar New Year holiday. Additionally, the cryptocurrency market has been energetic, so the demand for graphics cards from cryptocurrency miners has been outpacing supply for the most part. This development has been impacting shipments of DIY PCs and thereby suppressing the demand for retail client SSDs during 2021. In sum, the aforementioned factors have significantly impeded the consumption of NAND Flash wafers. In view of the demand situation in the different application segments, NAND Flash suppliers will likely ramp up wafer shipments to prevent excess inventory. Moving into 1Q22, even if there is sustained demand for storage components in the PC and server segments, smartphone-related demand will shrink further and exacerbate the oversupply situation of the NAND Flash wafer market. TrendForce forecasts that contract prices of 3D NAND Flash wafers will fall by 10-15% QoQ. Among the various NAND Flash products, 3D NAND Flash wafers will suffer the sharpest price drop. It is worth noting that the growing gap between supply and demand is already exerting considerable pressure on some suppliers, so there is a possibility that suppliers could begin dumping products earlier than expected at the end of this year. Such development could help moderate the magnitude of the price downtrend in 1Q22.

For more information on reports and market data from TrendForce’s Department of Semiconductor Research, please click here, or email Ms. Latte Chung from the Sales Department at lattechung@trendforce.com

Regarding the shipment of various end products in 4Q21, the quarterly shipment of notebook computers is expected to remain about the same as 3Q21 figures, as prior component gaps were partially resolved during the quarter, according to TrendForce’s latest investigations. As such, since PC OEMs’ DRAM inventory has lowered by several weeks, TrendForce has also further reduced its forecast of DRAM price drops for 1Q22. Even so, the overall demand for DRAM will still enter a cyclical downturn in 1Q22, during which DRAM ASP will also maintain a downward trajectory with an 8-13% QoQ decline. Whether this price drop will subside going forward will depend on how well suppliers manage their inventory pressure and how DRAM purchasers anticipate further price changes.

Decline in PC DRAM prices will narrow somewhat as PC OEMs reduce inventory

Whereas demand for Chromebooks has noticeably slowed down, demand for consumer and commercial notebooks remains strong. Furthermore, certain components which were previously in shortage are starting to experience improved lead times. Hence, quarterly shipment of notebook computers for 4Q21 will likely surpass earlier projections. Looking ahead to 1Q22, not only will the demand side undergo a cyclical downturn, but the sufficiency ratio of PC DRAM will also surpass 3.0% following 4Q21’s high base period for comparison. These factors will result in DRAM prices undergoing a noticeable decline, although PC OEMs will carry a lower inventory of DRAM in 1Q22 compared with 11-13 weeks of inventory in the previous quarter, thereby helping to curb the price drop of PC DRAM products. On the other hand, as mobile DRAM prices begin to drop, certain DRAM suppliers have begun reallocating some of their production capacities from mobile DRAM to PC DRAM. As a result, PC DRAM bit supply will likely undergo a corresponding increase in the short run. In sum, although the above factors are able to provide some upside momentum that narrows the price drop of PC DRAM products, they are not enough to result in an upturn. In particular, DDR4 and DDR5 PC DRAM will experience QoQ declines of 5-10% and 3-8%, respectively, for 1Q22, although the latter product will not noticeably impact the overall PC DRAM ASP, as its penetration rate is still relatively low.

Server DRAM prices will decrease by about 8-13% QoQ due to slowdown in procurement activities

At the moment, CSPs and enterprise clients are carrying about 6-9 weeks and 8-10 weeks of server DRAM inventory, respectively. Although these levels represent a slight decline compared to the end of 3Q21, this decline will not substantially contribute to an increase in demand. Hence, server DRAM buyers will remain relatively conservative with regards to procurement activities before server DRAM prices reach a level that these buyers consider to be rock bottom. DRAM suppliers’ inventory of server DRAM, on the other hand, has been gradually rising in 1H21 owing to decreased demand. Furthermore, certain suppliers have ramped up their wafer input for server DRAM products, leading to an increased production. In addition, while both buyers and sellers have reached a consensus on the falling prices of server DRAM, supply chain-related component gap issues have become gradually resolved, meaning Tier 1 clients will lessen their server DRAM procurement in the upcoming off-season. As a result, suppliers will then be able to fulfill orders that were placed by Tier 2 clients but previously deferred because suppliers prioritized orders from Tier 1 clients. These Tier 2 client orders will provide some upside demand for server DRAM, which is a component that is in relative surplus compared to other components. TrendForce therefore expects server DRAM prices to decrease by 8-13% QoQ in 1Q22, during which server DRAM prices will experience the most severe declines compared to the other quarters in 2022.

Mobile DRAM prices will decline by about 8-13% QoQ in light of intensifying oversupply

Thanks to mobile DRAM suppliers’ aggressive sell-offs in 4Q21, smartphone brands still carry a high level of mobile DRAM inventory as of the end of 2021. Looking ahead to 1Q22, not only will the market welcome the arrival of the traditional off-season, but other issues with the supply of processor chip bundles and the impact of the COVID-19 pandemic will also result in a 10% QoQ drop in smartphone production for the quarter. Smartphone brands will become even more careful with respect to their procurement activities so as to avoid continually accumulating inventory. As smartphone brands revise down their production targets, market demand for mobile DRAM has therefore become weaker now than it was in 1H21, in turn exacerbating the oversupply situation, which is reflected in the persistently rising mobile DRAM inventory of DRAM suppliers. On the whole, the aforementioned issues of high inventory levels and oversupply situation will lead smartphone brands to further conservatize their production and procurement plans in 1Q22. Given that suppliers have suggested a sales strategy of negotiating for 4Q21 and 1Q22 prices collectively, and both buying and selling sides are confronted with inventory pressure, TrendForce thus forecasts an 8-13% QoQ decline in mobile DRAM prices for 1Q22.

Graphics DRAM prices will hold flat while demand improves and spot prices rises ahead of time

The application demand for graphics DRAM has been recovering noticeably in the recent period. Even so, it is worth pointing out that the graphics DRAM market is subject to a very high degree of fluctuations, and this situation is exacerbated by the introduction of the application demand from cryptocurrency mining in recent years. Because the values of cryptocurrencies can swing dramatically, GPU manufacturers such as NVIDIA and AMD have to constantly adjust their sales strategies and switch between bundling and de-bundling. In so doing, they are contributing to the rapid rise and fall of graphics DRAM demand. The graphics DRAM products that the three dominant suppliers are now producing belong to the GDDR6 series. The latest distribution of graphics DRAM output by chip type shows that suppliers are also gradually shifting their focus from 8Gb to 16Gb. Micron, in particular, is the most proactive in this transition. On the other hand, the mainstream graphics cards are still using 8Gb chips at this moment, so the demand for 8Gb graphics DRAM chips has actually increased. In addition, spot prices of both GDDR5 8Gb and GDDR6 8Gb chips have experienced huge price hikes. Due to this uptrend in spot prices, the difference between spot and contract prices is now negligible for graphics DRAM. Some spot transactions even reveal prices that are higher than contract prices. This latest development reflects the situation where buyers are more proactive in price negotiations. Prices of graphics DRAM products on the whole will be fairly constrained from declining further due to the rise in spot prices, the aforementioned demand turnaround, and Micron’s decision to scale back production for 8Gb chips. Taking these factors into account, TrendForce expects that the overall price trend will stay mostly flat.

DDR3 Consumer DRAM prices will drop by about 3-8% QoQ despite reduced supply

The demand for consumer (specialty) DRAM is expected to be relatively weak in 1Q22 due to the effect of the traditional off-season for consumer electronics. Also, demand will stay fairly depressed for TVs, which represent the leading source of in-home entertainment spending. This is because countries around the world will continue in their attempts to lift their pandemic-related restrictions. In addition to these factors, component gaps in the supply chain will still be a serious challenge for device manufacturers. As DRAM components are in excess supply relative to non-memory components, device manufacturers will be less willing to stock up on the former. Suppliers have been slow to scale back production for DDR3 products this year because prices of DDR3 products surged during the first half of the year. However, the downward pressure on prices has now become much more significant, so the two leading South Korean suppliers have taken the initiative to revise their product mix strategies. Hence, they will again transfer more of their mature wafer processing capacity from DDR3 products to CMOS image sensors or logic ICs. Turning to price trend, TrendForce points to the strong correlation between DDR4 consumer DRAM products and PC DRAM products. The latter were the first to experience a weakening of demand, and their prices have already made a downward turn in 4Q21. Looking ahead to 1Q22, contract prices of PC DRAM products will keep falling because of their significant difference with spot prices. This means that DDR4 consumer DRAM products will also suffer sliding prices for 1Q22 with QoQ declines reaching 5-10%. Looking at DDR3 consumer DRAM products, their prices will also drop even as their supply is shrinking. Contract prices of DDR3 2Gb chips are projected fall by 3-8% QoQ on average for 1Q22, whereas DDR3 4Gb chips are projected to register larger declines.

For more information on reports and market data from TrendForce’s Department of Semiconductor Research, please click here, or email Ms. Latte Chung from the Sales Department at lattechung@trendforce.com

The growth of the NAND Flash market in 3Q21 was primarily driven by strong demand from the data center and smartphone industries, according to TrendForce’s latest investigations. More specifically, NAND Flash suppliers’ hyperscaler and enterprise clients kept up their procurement activities that began in 2Q21 in order to deploy products based on new processor platforms. Major smartphone brands, on the other hand, likewise expanded their NAND Flash procurement activities during the quarter as they prepared to release their new flagship models. As such, clients in both server and smartphone industries made significant contributions to the revenue growth of the NAND Flash industry for 3Q21. At the same time, however, suppliers also warned that orders from PC OEMs began showing signs of decline. On the whole, the industry’s quarterly total NAND Flash bit shipment increased by nearly 11% QoQ for 3Q21, and the overall NAND Flash ASP rose by nearly 4% QoQ for the same quarter. Thanks to rising prices and expanding shipments, the quarterly total NAND Flash revenue increased by 15% QoQ to a new record high of US$18.8 billion in 3Q21.

Moving into 4Q21, the impact of the ongoing component gaps has widened to numerous application segments of the NAND Flash market as the capacity crunch in the foundry market remains unresolved. Currently, NAND Flash components are in abundance relative to other kinds of key components. For OEMs and ODMs, the differences between the NAND Flash inventory level and the inventory levels of other components have been growing over the past several months. Therefore, they have to scale back orders and reduce stock for NAND Flash. As inventory adjustments are happening, NAND Flash contract prices will start to drop and thus bring about an end to the several quarters of strong revenue growth enjoyed by suppliers.

Samsung

Owing to procurement demand from hyperscalers and smartphone brands, the NAND Flash market generally remained in shortage in 3Q21, thereby driving up Samsung’s ASP by 10% QoQ. Even so, Samsung’s NAND Flash bit shipment increased by only about 5% QoQ due to weakening demand from PC OEMs and low inventory levels of certain other components carried by Samsung’s clients. Samsung’s NAND Flash revenue for 3Q21 reached US$6.51 billion, a 16.5% QoQ increase.

Kioxia

Although orders from PC OEMs began to wane, Kioxia still benefitted from orders from its major smartphone and data center clients in 3Q21, during which Kioxia’s NAND Flash bit shipment underwent a major QoQ increase exceeding 15%. As the NAND Flash market remained in a shortage situation, Kioxia’s ASP increased by about 4% QoQ, resulting in a revenue of US$3.64 billion, which represents a 20.8% QoQ increase and the highest single-quarter revenue in Kioxia’s history.

SK hynix

Among all NAND Flash suppliers in 3Q21, SK hynix registered the highest growth in bit shipment at more than 20% QoQ. This performance can be attributed to several reasons: the cyclical upturn in procurement activities from smartphone brands, persistently strong demand from the data center segment, and inventory-clearing by SK hynix in anticipation of weak demand in the upcoming off-season. Thanks to an ASP increase of about 5% QoQ, SK hynix’s NAND Flash revenue for 3Q21 reached US$2.54 billion, a 25.6% QoQ increase.

Western Digital

Although Western Digital’s PC OEM clients reduced their SSD orders due to supply chain disruptions, and demand from the retail end also remained weak, Western Digital was able to increase its NAND Flash bit shipment by 8% QoQ in 3Q21 due to enterprise SSD demand from the data center segment and NAND Flash demand from smartphone brands for the release of new smartphone models. Nevertheless, Western Digital’s ASP fell by 3% QoQ because the company increasingly focused on major clients and high-density products. Western Digital’s NAND Flash revenue for 3Q21 reached US$2.49 billion, a 2.9% QoQ increase.

Micron

Demand from the data center segment remained strong, and clients continued to adopt Micron’s 176L products. However, Micron’s shipment share in the smartphone market lagged behind that of other NAND Flash suppliers. Furthermore, its PC OEM clients were starting to be affected by the uneven supply of semiconductor chips. In light of these factors, Micron’s NAND Flash bit shipment increased by a modest 4% QoQ. On the other hand, the NAND Flash market remained in a severe shortage in 3Q21, thereby driving up Micron’s ASP by about 5% QoQ. Hence, Micron’s NAND Flash revenue for 3Q21 reached US$1.97 billion, an 8.8% QoQ increase.

Intel

Although persistently strong demand from the data center segment led to a massive price hike for enterprise SSDs and a nearly 6% increase in Intel’s ASP in 3Q21, the company was unable to fully meet its client demand since it could not procure sufficient upstream components. This lack of upstream components resulted in a severe decline of about 5% QoQ in Intel’s NAND Flash bit shipments and offset the upward momentum generated by an increase in Intel’s ASP. Intel’s NAND Flash revenue for 3Q21 reached a mere US$1.11 billion, a slight 0.6% QoQ increase.

For more information on reports and market data from TrendForce’s Department of Semiconductor Research, please click here, or email Ms. Latte Chung from the Sales Department at lattechung@trendforce.com

DRAM buyers were aggressively stocking up during 1H21 because quotes began to rise at the start of the year, and there were concerns about shortages in the supply chain, according to TrendForce’s latest investigations. To avoid the risk of a supply crunch, most DRAM buyers kept raising their demand until the middle of the year. Moving into this second half of the year, the COVID-19 pandemic has exacerbated component gaps, the adverse effect of which on OEMs’ ability to assemble their end products has widened as well. Due to having a glut of memory and a shortage of other key components, some OEMs have opted to scale back DRAM procurement. PC OEMs have especially become noticeably restrained in this regard. Fortunately, the server-related segment of the market has been propping up the overall demand; and because of this, most DRAM suppliers were able to post a marginal growth in shipments for 3Q21. Additionally, quotes for DRAM product also kept rising in 3Q21. On account of these factors, the quarterly total DRAM revenue rose again by 10.2% QoQ to US$26.6 billion for 3Q21.

Regarding 4Q21, DRAM buyers that are already carrying a high level of inventory will probably adopt an even more conservative stance, as OEMs are still affected by component gaps in the supply chain while also preparing for stock-taking at the end of the year. Without adequate demand for support, DRAM prices on the whole are going to make a downward turn in 4Q21 and thereby end this short three-quarter period of cyclical price upturn. Also, since 4Q21 is going to be the first quarter in the general downtrend in quotes, buyers anticipate further price reductions in the future and are more reluctant to stock up in the near term. Declines in quotes will continue to widen as a result. With demand shrinking and prices falling, the DRAM industry will inevitably experience a drop in revenue as well.

DRAM suppliers saw higher profits in 3Q21 because of rising prices and growth in output shares of more advanced process technologies

Looking at the performances of individual DRAM suppliers for 3Q21, the three dominant suppliers all had positive revenue growth but diverged slightly in bit shipments. Samsung and Micron posted a small QoQ increase in their respective bit shipments, whereas SK hynix posted a small QoQ drop. The rise in quotes was able to offset the weakening momentum in bit shipments, so the top three suppliers managed to again raise their revenues from the previous quarter. Samsung’s, Sk hynix’s, and Micron’s QoQ revenue growth rates came to 11%, 8%, and 12% respectively. While their growth rates were still around the 10% level, they were more modest compared with the previous quarter. In the ranking by revenue market share, Samsung remained at the top with its market share expanding further to 44%. SK hynix and Micron were still at second and third place respectively. The former’s market share shrank a bit to 27.2% due to the decline in bit shipments, whereas the latter’s market share grew slightly to 22.9%.

In terms of profitability, 3Q21 saw continuing improvements thanks to rising quotes and growth in the output shares of the more advanced process technologies. Samsung raised its operating margin to 53% in 3Q21 as the share of 1Z nm products in its output kept growing. As such, Samsung’s operating margin reached almost to the high of nearly three years ago. Likewise, SK hynix’s operating margin grew to 47% in 3Q21 because of the increase in the output share of 1Z nm products. As for third-largest supplier Micron, the increase in its ASP for its latest fiscal quarter (June to August) is similar to the increases in the two South Korean suppliers’ respective ASPs for 3Q21. Its operating margin also rose to 42% for this period. Moving into 4Q21, TrendForce expects the slide in DRAM prices to be an inescapable trend. Whether individual suppliers will be able to maintain a high level of profitability depends on their own progress in process migration and yield rate improvement.

While the specialty DRAM market weakened in 3Q21, Taiwanese suppliers trailed closely behind the three dominant suppliers

Compared with mainstream DRAM products, specialty DRAM underwent a higher magnitude of price hikes in 1H21. Hence, as demand for TVs and other consumer electronics fell in 3Q21, and supply chain disruptions persisted, clients in turn reduced their DRAM procurement. This reduced demand indirectly impacted the revenue performances of Taiwanese suppliers, which primarily target the consumer electronics market. Nanya Tech continued to raise its quarterly ASP in order to offset weak shipment. The company’s revenue increased by about 6% QoQ in 3Q21, while its operating profit margin also increased from 31.2% in 2Q21 to 38.1% in 3Q21 due to the price hike. Winbond benefitted from high demand for its low-density (1/2Gb) products and recorded a nearly 13% QoQ increase in DRAM revenue in 3Q21. Among all Taiwanese suppliers, Winbond registered the strongest revenue growth during the quarter.

Nevertheless, TrendForce’s investigations also find that the physical spaces within the two aforementioned Taiwanese suppliers’ fabs are now fully occupied, meaning the suppliers are unable to install additional equipment in these fabs before building new fabs. Hence, these suppliers’ financial performances will be heavily impacted by their ASPs in the short run. For instance, Nanya Tech’s new facilities will not contribute to DRAM production until construction finalizes in 2024. In the short run, Nanya Tech is able to slightly increase its DRAM bit shipment only through migrating to the advanced 1A/1B nm process technologies. Similarly, Winbond will be able to continue expanding its production capacity only after its new fab located in Luzhu, Kaohsiung kicks off mass production in 2H22. As for PSMC, its revenue from sales of PC DRAM products manufactured in-house increased by about 6% QoQ in 3Q21. However, PSMC’s total revenue from both sales of in-house DRAM and its DRAM foundry business increased by 12% QoQ in 3Q21.

For more information on reports and market data from TrendForce’s Department of Semiconductor Research, please click here, or email Ms. Latte Chung from the Sales Department at lattechung@trendforce.com

Despite the forecasted 18.6% YoY growth in total DRAM bit supply next year, the global DRAM market is still expected to shift from a shortage situation to an oversupply, according to TrendForce’s latest investigations. This shift can primarily be attributed to the fact that, not only are most buyers now carrying a relatively high level of DRAM inventory, but DRAM bit demand is also expected to increase by only 17.1% YoY in 2022. On the price front, the oversupply situation will result in a drop in DRAM ASP in 2022 but not a major decline in annual DRAM revenue, thanks to the oligopolistic nature of the DRAM industry. Annual DRAM revenue for 2022 is expected to reach US$91.54 billion, which represents a slight YoY increase of 0.3%.

Based on an analysis of DRAM sufficiency ratio (which refers to the surplus of supply in comparison with demand) for each quarter in 2022, TrendForce forecasts a 15% YoY decrease in DRAM ASP for 2022, with prices undergoing the more noticeable declines during the first half of the year. Heading into 2H22, however, owing to the rise in DDR5 penetration rate, as well as the arrival of peak seasonal demand, the decline in DRAM ASP will likely narrow. TrendForce does not rule out the possibility that DRAM ASP may even hold flat or undergo an increase in 2H22.

Annual NAND Flash revenue is expected to experience yet another increase next year by 7.4% YoY while numerous suppliers compete in higher-layer NAND Flash market segment

Turning to the NAND Flash market, TrendForce forecasts a 31.8% increase in total bit supply for 2022 and a 30.8% increase in total bit demand. Hence, NAND Flash ASP will likely experience a downtrend next year as a result of the oversupply situation. In addition, due to the perfect competition in the NAND Flash market, the decline in NAND Flash ASP next year will be more noticeable than the decline in DRAM ASP. However, NAND Flash suppliers continues to make progress in the stacking of NAND Flash layers, so the growth in NAND Flash bit supply next year will therefore remain above 30%. TrendForce thus expects NAND Flash revenue to have more room for growth and reach US$74.19 billion in 2022, a 7.4% YoY increase.

TrendForce’s forecast based on an analysis of NAND Flash sufficiency ratios for each quarter in 2022 similarly points to an 18.0% YoY decline in NAND Flash ASP next year. Much like DRAM, NAND Flash prices will undergo the more noticeable declines during 1H22. Arrival of peak seasonal demand in 2H22 will potentially result in a narrowing of price drops and a potential for quarterly prices to hold flat.

On the whole, the revenue performance of the DRAM industry and that of the NAND Flash industry over the years show that the annual total DRAM revenue is growing at more stable pace. Again, this has to do with the oligopolistic structure of the DRAM market. Since the DRAM market has a different competitive landscape, the fluctuations in the overall DRAM ASP have been relatively modest over the long run. However, the development of the DRAM manufacturing technology is approaching a physical bottleneck as process nodes shrink below the 20nm level. This means that the bit growth derived from the deployment of a more advanced process is becoming more and more limited over the years. On the other hand, not only are NAND Flash suppliers relatively more unstable in their capacity expansion plans compared to the DRAM industry, but further improvements in NAND Flash layer-stacking technology also remains feasible. Hence, the fluctuations in the overall NAND Flash ASP have been relatively more volatile over the long run. On account of these factors, the DRAM industry generally has smaller YoY revenue growth rates compared with the NAND Flash industry, although the DRAM industry continues to surpass the NAND Flash industry in terms of profitability.

Profitability of suppliers may be constrained if total revenue fails to keep pace with continuously rising CAPEX

Regarding the CAPEX (capital expenditures) of DRAM suppliers, there has been a gradual increase in these suppliers’ CAPEX to sales ratio in recent years, for two reasons. First, the development of the DRAM manufacturing technology is approaching a physical bottleneck. Die improvements have become more and more limited after process nodes have shrunk below the 20nm level. Micron’s 1alpha nm process can offer an almost 30% increase in bits per wafer, but the 1Xnm-to-1Ynm migrations and the subsequent 1Ynm-to-1Znm migrations that the major suppliers have undertaken in the recent period have yielded increases of no more than 15% in bits per wafer. Looking at future technological developments, Samsung and SK hynix have already integrated EUV lithography into their most advanced process technologies. However, orders for EUV lithography tools have a much longer lead time, and the costs of these tools are also high. Hence, the three dominant suppliers have allocated a large chunk of capital expenditure in advance to place orders for EUV lithography tools ahead of time.

Secondly, the oligopolistic structure of the DRAM market has also helped establish a regime where there is a very low chance of a supplier’s ASP dipping under its fully-loaded cost despite the recurrence of the cyclical price downturn. Moreover, DRAM suppliers have accumulated a substantial amount of profit from their products. In view of the difficulties in die shrinking, suppliers ranging from the three dominant suppliers to others with less market share (such as Nanya Tech and Winbond) have developed tangible plans for capacity expansions. These plans have, in turn, become the other main driver behind the ongoing increase in the CAPEX to sales ratio.

The CAPEX to sales ratio of NAND Flash suppliers have likewise risen substantially following the transition to 3D NAND technology in 2017. Notably, the average CAPEX to sales ratio fell within the 25-30% range prior to 2017, but it has since climbed to nearly 40% as of now. This growth can primarily be attributed to the fact that, as the number of 3D NAND layers increases, there is a corresponding increase in the lead times of NAND Flash products and in the degree of precision as well as difficulty involved in the etching process. While the mainstream layer count of NAND Flash products approaches 1YY layers, suppliers are currently planning to move forward with the development of products with 2XX layers, which place an ever-increasing demand on etch depth. The CAPEX of NAND Flash suppliers will continue to grow alongside increases in layer count and revenue.

TrendForce indicates that NAND Flash layer-stacking technology will continue to progress, meaning suppliers will continue to pursue the stacking of additional layers as a way to lower their manufacturing cost per GB. As such, the NAND Flash industry’s CAPEX will have additional potential for growth going forward, with a CAPEX to sales ratio of close to 40% or above. It should be noted, however, that if total NAND Flash revenue fails to keep pace with the growth in CAPEX in the next few years, NAND Flash suppliers’ CAPEX to sales ratio may potentially undergo an excessive increase, thereby constraining the profitability of suppliers.

For more information on reports and market data from TrendForce’s Department of Semiconductor Research, please click here, or email Ms. Latte Chung from the Sales Department at lattechung@trendforce.com