The storage market has recently seen a divergence in trends. NAND Flash and DRAM, as the most important storage chips, are facing a weak demand in various consumer electronics under the background of a sluggish economy. However, many NAND Flash manufacturers are still reducing production. On the other hand, due to the increased demand for AI servers, the demand for HBM (High Bandwidth Memory) chips, which match the high computational power requirements of AI scenarios, is on the rise, helping to revive the overall demand for DRAM.

On August 11th, reporters from the First Financial Daily learned from multiple computer assembly merchants in Huaqiangbei, Shenzhen, that the price of solid-state drives, one of the main products of NAND Flash, has continued to fall and is now at its lowest point of the year.

Reflected in the performance of NAND Flash manufacturers, Kioxia's financial report for the first quarter of 2023, released on August 9th, shows that in the latest quarter ending June 30th of this year, its revenue was 251.1 billion yen, a year-on-year decrease of 31.6%, and the operating profit loss was 130.8 billion yen, with the average selling price falling month-on-month.

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Under the weak demand, Japanese media recently reported that Kioxia's new factory in Kitakami City, Iwate Prefecture, Japan, will be delayed in operation. At the end of July this year, Samsung and SK Hynix also signaled at their financial reports that the production of NAND will continue to be reduced.

On the other hand, DRAM has taken a different course. Under the catalysis of the AI wave, the signs of DRAM market recovery are more obvious. With HBM storage becoming an industry hotspot, both Samsung and SK Hynix have reported plans to expand their HBM production capacity.

"The DRAM market is recovering earlier than NAND Flash, including reasons such as more severe production cuts in DRAM, relatively rigid demand for DRAM in terminal applications such as smartphones, and increased demand for HBM in AI scenarios," said Brady Wang, Deputy Director of Research at Counterpoint.

At present, the HBM market is basically divided among three major DRAM manufacturers: SK Hynix, Micron, and Samsung. However, domestic companies related to the industry chain have also attracted attention from capital recently. Looking at the market from the bottom, how much can domestic storage-related manufacturers benefit from this AI wave, and when will the market recovery come?

Flash memory manufacturers reduce production

The price of memory in the consumer electronics market is still at a low point. Many computer assembly merchants in Huaqiangbei said that the prices of computer parts such as CPUs and motherboards have fluctuated and risen recently, but the price of solid-state drives is relatively stable and has now reached the lowest point of the year. The price of a common 2.5-inch 1T solid-state drive is as low as about 300 yuan, while models with higher quality and faster read and write speeds are priced at 400-500 yuan, and the price of a common 2T solid-state drive is around 500 yuan.

Some merchants said that solid-state drives that were sold for 400 or 500 yuan last year have now fallen to more than 200 yuan. A long time ago, the price of solid-state drives was about 0.8 yuan per 1G, which has now been greatly discounted.Solid-state drives (SSDs) are a category of primary storage products that use NAND Flash as the medium, and are applied in scenarios such as PCs, laptops, and data centers. In addition, mobile devices like USB drives and smartphones also widely adopt NAND Flash as the storage medium. Amidst a weak consumer electronics market and data center demand, various types of NAND Flash products have seen price reductions, and manufacturers are still controlling production capacity.

Samsung's responsible person has stated in the earnings call at the end of July that Samsung will reduce the production of some DRAM and NAND products, especially NAND products. SK Hynix has stated that considering the high industry inventory levels and the lower profitability of NAND compared to DRAM, it will further reduce NAND output. Kioxia has stated in its financial report that due to production adjustments by flash memory manufacturers, the balance between supply and demand is gradually improving, with customer inventory improvements and the growth of PC and smartphone memory expected to repair the demand for flash memory. However, Kioxia also admits that due to inventory adjustments and weak corporate IT spending, the demand for data center and enterprise-level SSDs in 2023 will slow down, and the market recovery will be delayed. Kioxia will adjust production according to market conditions.

According to the slow buy comparison platform, one of the main DRAM products, computer memory modules, is also at a low price on mainstream e-commerce platforms. In the hot-selling list of 32GB notebook memory on JD.com, a Kingston memory has been sold for about 540 yuan since the second half of this year, a reduction of about 50 yuan compared to the beginning of the year, and a Samsung memory has fluctuated and reduced in price within the year, currently selling for 574 yuan.

However, in comparison, the recovery speed of DRAM demand and prices is still faster than that of NAND Flash. A senior executive of Nanya Technology, a DRAM manufacturer, stated in the financial report meeting in July that DRAM demand hit bottom in the second quarter of 2023 and is expected to rebound slightly or moderately in the second half of 2023. TrendForce previously expected that the average price of NAND Flash would fall by about 3~8% in the third quarter, while the price drop of DRAM will narrow to 0~5%. In addition, the demand for HBM has recently been explosive, gradually catalyzing the recovery of the DRAM market.

HBM Becomes the New Favorite in the Market

HBM is a high-performance DRAM based on a 3D stacking process. After stacking through Through-Silicon Vias (TSV) technology, it can be packaged with GPUs and has higher bandwidth and lower power consumption. Under the condition of high computing power of processors, using HBM can avoid the "memory wall" caused by the slow data access speed of the storage compared to the data processing speed of the processor.

Since 2023, major technology companies have successively laid out AI large models, setting off a "hundred model war". AI training mostly uses advanced GPUs (graphics processors), and HBM is the ideal solution for such GPU storage units. TrendForce analysis states that high-end AI chips such as NVIDIA, AMD, and Intel mostly choose to carry HBM. From 2023 to 2024, during the AI construction boom period, a large amount of demand is concentrated on AI training chips, driving up the use of HBM. In 2023, even with the expansion of production capacity by the original factory, HBM still cannot fully meet customer needs. Judging from the plans of each original factory, it is expected that the supply of HBM in 2024 will increase by 105% year-on-year.

The main players of HBM are SK Hynix, Samsung, and Micron. SK Hynix's HBM3 products are currently leading, but Samsung and Micron are also making efforts, and the market competition is becoming fierce.

At the end of July this year, Micron announced the launch of the industry's first 24GB capacity second-generation HBM3 memory with 8-layer stacking. SK Hynix and Samsung have also released news of expanding HBM production capacity. A senior executive of SK Hynix stated in the financial report call in July that in order to ensure the production capacity of high-density DDR5/HBM within a limited capital expenditure budget, efforts will be made to improve production efficiency and reduce investment in other aspects.

According to TrendForce data, in 2022, the market share of SK Hynix, Samsung, and Micron in HBM was 50%, 40%, and 10%, respectively. With the expansion of production by SK Hynix and Samsung and the increase in orders from customers, it is expected that the market share gap between SK Hynix and Samsung in 2024 will narrow, with the two companies accounting for about 95% of the total share.As HBM becomes the focus of the market, some domestic industry chain companies have also attracted market attention. A research report from Minsheng Securities states that HBM has driven an increase in demand for upstream equipment and materials, and related industry chain segments are expected to benefit, with the domestic industry chain quickly following suit. However, several companies related to the storage chip industry chain, including Yak Technology, Lianrui New Materials, and Shannon Core Creation, have all seen a correction in their stock prices recently after a surge in early July.

Brady Wang told reporters that, given that HBM manufacturers are currently limited to SK Hynix, Samsung, and Micron, domestic memory manufacturers have relatively limited opportunities to participate in the HBM industry chain in the short term. In addition, due to the current urgent demand and high profits for HBM, manufacturers need more stable suppliers and will not prioritize cost reduction, so the opportunities for domestic manufacturers to enter the industry chain are also limited in the short term, but there are opportunities in the future. In the context of the entire AI wave, a variety of domestic industry chain manufacturers, including materials and equipment, will have the opportunity to benefit from the increased demand for AI servers.

For example, the growth in demand for AI servers may drive the overall demand for memory in the future. Micron previously stated that the capacity demand for DRAM and NAND Flash in AI servers is 8 times and 3 times that of traditional servers.

Brady Wang also said that although the AI server market is growing rapidly, the scale of AI servers is different from that of traditional servers or PCs, and the volume of HBM in the DRAM market is limited. With manufacturers building and expanding production, the increase in related HBM production capacity should be expected by 2025. The recovery of the DRAM market in the future still depends on the recovery of demand for products such as PCs and mobile phones.