What signals do the latest financial reports of the world's top five storage plants release?

01

The financial reports of the five major original factories have been released, are there joys amidst worries?

According to the latest financial reports of the five major companies Samsung, SK Hynix, Micron, Kaixia, and Western Digital, although they have experienced revenue losses, the decline rate has significantly slowed down. Some manufacturers have stated that some downstream demand is slowly recovering and they are optimistic about the future market.

Samsung: Expects Q4 demand to rebound

Samsung Electronics' third quarter financial report at the end of October showed that Samsung's revenue for the quarter was KRW 67.40 trillion. Despite a year-on-year decline in revenue, the company's net profit reached KRW 5.5 trillion, exceeding the previously expected KRW 2.52 trillion. It is worth noting that Samsung's operating profit for the quarter was approximately 2.4 trillion Korean won, showing quarterly growth, more than three times the 640 billion Korean won in the first quarter (the lowest since 2009) and 670 billion Korean won in the second quarter.

Regarding the performance changes, Samsung stated that it benefited from the strong market response of the Galaxy Z Flip 5 and Galaxy Z Fold 5 launched in August, as well as significant sales of mobile OLED panels, mainly Apple's iPhone 15 series.

Samsung stated during its earnings conference call on October 31st that the recovery prospects of the storage chip market remain uncertain due to factors such as changes in the international situation, slow demand recovery, and continuous adjustments in customer inventory. However, the company is paying attention to the initial signs of gradually stabilizing and improving demand, supported by factors such as consumer optimism, easing inflation, and the release of new products by major customers.

Samsung pointed out that with frequent year-end promotional activities, the release of more new products by major customers, and strong demand for generative artificial intelligence, the company is optimistic about the rebound in demand for storage chips in the fourth quarter.

SK Hynix: Market conditions show signs of improvement

At the end of October, SK Hynix released its financial report for the third quarter of the 2023 fiscal year ending on September 30, 2023. The company's combined revenue for the third quarter of fiscal year 2023 was KRW 9.07 trillion, with an operating loss of KRW 1.79 trillion and a net loss of KRW 2.18 trillion.

SK Hynix explained, "Due to the increasing market demand for high-performance semiconductor memory products, the company's performance has continued to improve after the low point in the first quarter. Especially, the sales momentum of its main products such as representative AI memory HBM3, high-capacity DDR5 DRAM, and high-performance mobile DRAM is good, with operating revenue increasing by 24% and operating losses decreasing by 38% compared to the previous quarter. ”The company also emphasized that the DRAM that went from profit to loss in the first quarter of this year only turned from loss to profit after two quarters, which is of great significance. ”

In response to the increasing trend of operating revenue, SK Hynix analyzed that "while the overall sales of DRAM and NAND flash memory have grown, the increase in the average selling price (ASP) of DRAM has also had a significant impact. ”

From a product perspective, DRAM benefited from improved sales of high-performance server oriented products such as AI, with shipments increasing by about 20% compared to the second quarter, while ASP also increased by about 10%. The shipment volume of NAND flash memory has increased in high-capacity mobile products and solid state drives (SSDs).

SK Hynix predicts that the DRAM market, which has turned losses into profits, is expected to continue to improve due to the impact of the generative AI craze. The NAND, which has been continuously losing money, is gradually showing signs of improvement in the market situation. The company will do its utmost to maintain the overall performance improvement trend. And it was stated that in the second half of this year, with the visualization of the production reduction effect of various memory suppliers, customers with reduced inventory are creating demand for semiconductor memory procurement, and product prices have also entered a stable trend.

In addition, SK Hynix revealed that the company has decided to increase its investment in high value-added main products such as HBM, DDR5, LPDDR5 DRAM, etc. The company will carry out production line conversion centered on the fourth generation 10 nanometer level (1a) and fifth generation 10 nanometer level (1b) DRAM, while expanding investment in HBM TSV * technology.

Micron: Storage market will see recovery next year

At the end of September, Micron Technology announced its fourth quarter performance for the 2023 fiscal year ending on August 31, 2023. Micron achieved a revenue of $4.01 billion for the quarter, a year-on-year decrease of 40%, but better than market expectations of $3.93 billion.

In terms of business, Micron Technology's DRAM business revenue reached 2.8 billion US dollars, accounting for 69% of the total revenue. DRAM bit shipments increased month on month, while ASP decreased month on month. NAND Flash revenue was $1.2 billion, accounting for 30% of total revenue, with a month on month increase in bit shipments and a decrease in ASP.

Micron expects its revenue to move towards recovery in the first quarter of fiscal year 2024, with revenue expected to reach $4.2 billion to $4.6 billion.

For the future outlook, Micron stated that in the challenging memory market environment of fiscal year 2023, Micron maintained its technological leadership, launched a large number of leading products, and took decisive actions in terms of supply and cost. With the increase in market demand and supply adjustment, Micron expects the storage market to experience a recovery in 2024 and further improve in 2025.

Kaixia: NAND prices have hit bottom and rebounded

On November 14th, Kaixia released its financial report for the previous quarter (July September 2023), with a revenue of 241.4 billion yen (approximately 1.67 billion US dollars), a decrease of 3.9% compared to the previous quarter and a year-on-year decrease of 38.3%.

Due to a decline in demand for memory chips in smartphones and personal computers (PCs), Kaixia incurred an operating loss of 100.8 billion yen in the second quarter. But Kaixia said that benefiting from the improvement of storage supply and demand balance, optimization of storage portfolio, and the comprehensive performance of weak yen exchange rate, the operating loss has improved compared to the previous quarter.

From the perspective of shipment volume, from July to September, Kaixia's NAND shipment volume decreased, and its revenue both decreased compared to the same period last year. Benefiting from the rebound of NAND prices from the bottom, the loss situation in this quarter has improved. The shipment volume of Kaixia NAND Bit decreased by about 13% month on month, while the NAND ASP priced in Japanese yen increased by about 8%. Kaixia stated that due to a decrease in NAND shipments in the quarter, the quarter on quarter revenue decreased.

Looking ahead to 2024, Kaixia believes that the original factory's production reduction strategy has affected the overall supply, coupled with the normalization of customer inventory, the market supply and demand balance will continue to improve, and NAND prices have bottomed out and rebounded. However, due to macroeconomic uncertainty and weak demand for general-purpose servers, enterprise IT spending has decreased. It is expected that the demand for data centers and enterprise SSDs will recover after the first half of 2024, and there is confidence in the growth potential and long-term demand of the NAND market.

It is reported that Kaixia will continue to adjust production according to market conditions, manage operating expenses reasonably, and reduce production costs.

Western Digital: The cloud market will continue to grow

At the end of October, Western Digital announced its first quarter performance for the 2024 fiscal year. The company's revenue for the first quarter was $2.75 billion, an increase of 3% compared to the previous quarter and a decrease of 26% year-on-year.

In the terminal market, flash memory prices continued to decline in the quarter, but due to the increase in flash memory product shipments, some businesses experienced month on month growth. Among them, the revenue of Western Digital Cloud business was 872 million US dollars, accounting for 32% of the total revenue, a decrease of 12% month on month and 52% year-on-year; Client revenue was 1.147 billion US dollars, accounting for 42% of total revenue, with a month on month increase of 11% and a year-on-year decrease of 7%; Consumer revenue was 731 million US dollars, accounting for 26% of total revenue, a month on month increase of 14%, and a year-on-year increase of 8%.

Western Digital CEO David Goeckeler stated that the company's performance in the first quarter exceeded expectations due to the team's efforts to improve business agility and develop differentiated and innovative products in a wide range of end markets, resulting in a continuous increase in profit margins for the flash and HDD businesses.

David Goeckeler pointed out that the company's consumer and client markets continue to perform well, and it is expected that its cloud market will continue to grow. As market conditions continue to improve, the company's improved cost structure enables Western Digital to leverage its enhanced profitability.

In addition, Western Digital expects revenue for the second quarter of fiscal year 2024 to be between $2.85 billion and $3.05 billion.

02

Supply and demand changes: Some downstream companies are breaking the ice, and segmented applications are boosting

The semiconductor and storage markets are cyclically converging, and when the entire semiconductor industry enters a downturn, the storage market is greatly impacted by headwinds. However, the overall volatility and resilience of the storage market are high. In the second half of the year, the industry has gradually released positive signals, and as the market recovers, the storage market will also show good signs.

Looking back on the days of winter, storage manufacturers have continued to reduce capital expenditures and decrease production to regulate inventory, in order to control the excess supply in the market. Through the strong implementation of these production reduction strategies, the market inventory level is tending towards normalization. At the same time, fields such as AI servers, high-performance computing, and automotive intelligence have generated a large demand for storage, giving the market more confidence.

In the second half of the year, signs of improvement in the supply and demand pattern of storage chips have accelerated. From the perspective of comprehensive demand, after a long period of inventory digestion, the supply chain has shown signs of bottoming out in terms of demand for smartphones, laptops, and other terminal products. In addition, the release of new products by companies such as Apple, Xiaomi, and Vivo has driven some demand improvement. Qunlian once claimed to have seen an increase in demand for modules and smartphones from mainland China, with some customers even accepting price increases of 30% to 35%. TSMC, the leading semiconductor foundry, stated that customer AI demand remained strong in the fourth quarter, driving up 3nm production momentum. However, customers continue to control inventory, and inventory adjustments will continue until the fourth quarter. However, it also revealed that it has seen signs of a rebound in demand from PC and mobile phone customers.

In terms of servers, with the high computing power requirements of AI servers driving up the demand for bandwidth storage HBM, original manufacturers such as Samsung, Micron, SK Hynix, etc. are competing to lay out HBM, and the CPU upgrade of general-purpose servers is accelerating the penetration of DDR5. In terms of automotive storage, the continuous promotion of electrification, intelligence, and networking has increased the demand for in vehicle storage. At the same time, more domestic manufacturers such as Dongxin Semiconductor and Baiwei Storage have entered the automotive electronics supply chain system for in vehicle storage products. The development of the automotive storage market is worth looking forward to. In addition to the aforementioned segmented applications, such as big data, cloud computing, wearable devices, and other applications related to high-speed storage, high reliability, and data security also have great potential for development, which will benefit storage vendors.

03

Is the comprehensive rise of storage chips approaching a turning point?

Wu Yating, Senior Vice President of Research at Jibang Consulting, stated that in 2023, the global flash memory market finally experienced a comprehensive price increase in the fourth quarter due to aggressive production cuts by suppliers. According to data from TrendForce, NAND Flash contract prices rose across the board in the fourth quarter, with an increase of approximately 8-13%.

TrendForce predicts that the annual supply growth rate in 2023 will be -2.8%, marking the first negative growth year in several years and driving the overall efficiency ratio to -3.7%, which will serve as the foundation for stabilizing flash memory prices in the second half of the year. However, Wu Yating believes that due to the lack of strong demand from substantial terminals, the continuity of the current upward trend is still unclear. If demand recovers as scheduled in the second half of 2024, especially with an increase in the purchasing momentum of server SSDs, and suppliers not rushing to restore production capacity utilization, the overall efficiency ratio is expected to be controlled at -9.4%, accelerating the supply-demand balance, and flash memory prices are expected to show a pattern of annual increase.

In terms of DRAM, TrendForce predicts a quarterly increase of approximately 3-8% in DRAM contract prices for the fourth quarter. And it is believed that whether this upward trend can continue depends on whether suppliers continue to adhere to their production reduction strategies and the degree of actual demand recovery, with the most critical being in the field of general-purpose servers.

Previously, Li Peiying, the General Manager of South Asia Technology, stated at a press conference in France that prices in the fourth quarter will be more stable than in the third quarter. Various suppliers are trying to lock in the decline of DDR4 and even raise prices. Whether they can succeed depends on the changes in the next few weeks. Currently, DDR5 prices have risen, and the pressure on two major DDR4 manufacturers has eased. The probability of continuous price decline is not high, and it is expected that DDR4 and DDR3 prices will rise again.

In addition, regarding the memory industry, Wu Yating pointed out at the MTS2024 Storage Industry Trend Seminar that looking ahead to 2024, the memory market will have the following three concerns: firstly, the original factory inventory level has begun to decline after the production reduction, but it is still necessary to observe whether the inventory can continue to transfer to buyers; 2、 It is expected that the original factory production capacity will slowly increase. If the operating rate is restored early due to the market warming up, it will cause another imbalance between supply and demand; 3、 Whether the demand of each terminal can meet the expected temperature recovery, with the continued focus on AI related orders.