Memory IC supply could tighten in the second half

Semiconductor buyers can expect a buyer’s market for memory ICs in the first half of 2020, but supply should tighten and prices increase in the second half as demand for DRAM and NAND flash rises.

While price increases will be modest, the market may lean towards being a seller’s market in the second half and will be markedly different than the memory IC market 2019, according to industry analysts.

“Last year was a brutal year” for memory IC manufacturers, said Brian Matas, vice president of research for IC Insights. “The total memory market was down 33 per cent. DRAM declined 37 per cent, flash declined 27 per cent,” he said. DRAM prices fell 44 per cent, while flash tags dropped 25 per cent compared to 2018.

The decline of the memory IC market in 2019 actually began in 2018 after new capacity was added following two years of robust demand and rising sales. “In 2017 and 2018, DRAM manufacturers were making a killing and prices were rising,” said Matas. “They started reinvesting their profits to add new manufacturing capacity and it came online and supply exceeded demand,” he said.

Worldwide sales revenue for DRAM will increase from $67 billion in 2019-$73 billion in 2020. Source: IHS Markit

Demand cools
At the same time, memory IC demand cooled as fewer servers were ordered for data centers for cloud computing by companies such as Amazon, Facebook, Google, Microsoft. Such servers use a lot of memory and help to drive the overall memory IC market. With weakened demand, prices for both DRAM and NAND flash memory fell.

The good news for DRAM and flash memory manufacturers is that data centers will invest in more servers and storage systems in 2020, which means demand for memory chips will increase. “We’re expecting a return to growth in the second half of the year,” said Matas. “We are seeing double-digit increases for both DRAM and flash.”

He said DRAM revenue will increase 12 per cent to $69.8 billion, while NAND flash sales rise 18 per cent to $53.5 billion. “Both of these are pretty nice turnarounds,” said Matas. However increased demand for memory IC probably won’t occur until the second year. “It may be a little bit soft in the first half of the year or just perhaps tepid growth,”
said Matas.

Prices for DRAM will remain soft in the first half and for the total year, but rise in the second half, although for the total year, the average DRAM price will fall about 8 per cent, according to IC Insights. However, flash memory prices should rise about 4 per cent in 2020.

Low prices boost demand
Low prices in the first half of 2020 will boost demand for memory ICs. “We think these low prices are really going to spur unit demand for DRAM and NAND flash because of elasticity of demand,” he said. He said prices are very low compared to last year and 2018 so memory is much more affordable. Systems manufacturers will likely decide “to pack their systems with a lot more memory,” said Matas.

Servers and mass storage systems for data centers and cloud computing won’t be the only drivers for memory ICs in 2020. Demand for memory should also increase for portable computers and next generation smart phones, according to Jeff Janukowicz, research vice president for IDC. More portable computers will be equipped with solid-state drives (SSD), which use NAND flash. We are expecting almost a 70 per cent SSD attach rate next year for portables,” said Janukowicz. He said lower NAND prices will help drive use of SSD in portable computers.

He said the mobile phone market will also drive memory IC growth in 2020. “That’s due to next generation mobile phones and the ramp up of 5G,” he said.

Janukowicz noted that 5G is in its early phases of adoption but will grow in 2020 and for several years after. New 5G phones will use more memory than previous generations. Many older phones had been equipped with 8 or 16Gb of memory, but newer 5G phones will have 64Gb of memory or more.

Michael Yang, director of research for researcher IHS Markit, said 5G will deliver more bandwidth, enabling people “to do more with their cell phones.” Fifth generation phone technology “will deliver a better gaming experience, a better virtual reality experience, enhance analytics and all of that is going to increase memory consumption,” said Yang.

After declining 25 per cent in 2019, NAND flash memory rep will rise from $45 billion last year to $57 billion in 2020 because of increasing demand and higher prices.Source: IHS Markit

More memory for cars
Another memory driver will be autonomous vehicles. “As cars become smarter, they need more sensors to collect more data and they need more processing power and more DRAM to help process that data and NAND flash for storage,” said Yang. As a result, memory IC content in vehicles will increase significantly.

However, Yang points out while memory content in vehicles will rise, automobiles represent a relatively small market compared to computers and smart phones. About 1.8 billion smart phones will ship in a year and about a 250 million PCs are sold each year. Vehicle sales typically total about 100 million annually.

One of the other drivers for memory will be next generation game consoles,” said Janukowicz. Both PlayStation and Xbox are scheduled to release next generations of their video game systems and the new consoles will shift away from hard drives to SSD which will “help boost demand for NAND flash,” he said.

While memory IC demand will increase in 2020, the bad news for buyers is there will be cutbacks in capital expenditures for new capacity. “The challenges that the industry experienced in 2019 resulted in some lower production plans for 2020 and reductions in capital spending,” said Janukowicz. “That will bring the market a little bit more back into balance.” As a result, prices should firm or even rise a bit.

“In fact, with NAND we are already beginning to see the market firm up. “We are expecting price increases” in the first quarter, he said.

In addition to overall memory IC cutbacks which will limit memory capacity growth, a fire and a power outage at two memory IC fabs could also end up crimping supply in the short term.

“There was a fire at a Kioxia (formerly Toshiba) plant and a power outage at a Samsung fab,” said Janukowicz. Those events have created “some uncertainty in the NAND market.”

Production disrupted
Production of DRAM and NAND at Samsung’s fab in Hwaseong, South Korea was stopped due to the outage, which was caused by an explosion at a local substation. While the outage only lasted about a minute, it was unclear how many wafers were in process at the time and how many of them were damaged.

Production was also disrupted by a fire at Kioxia fab in Japan and would likely lead to price increases in the first quarter. The fab makes 64-layer and 96-layer, 3D NAND flash.

Because of the fire and outage and overall capex cutbacks, “we expect pricing to remain volatile through the first half of this year and some price increases to come along with that,” said Janukowicz.

Some memory IC buyers may be heartened by the fact that two Chinese companies are expected to begin volume production of DRAM and NAND in 2020, which eventually could boost supply in the longer term. China’s CMXT will produce some DRAM and YMTC will build NAND flash.

Both will start volume production in 2020 but probably won’t be a factor in the memory market until 2021, according to Janukowicz. “It takes some time for their products to ramp. But China remains committed to being a memory provider and becoming a larger player,” he said.