Not so long ago we wrote that RAM will become cheaper. There are several reasons for this, including falling demand and the desire of RAM suppliers to quickly empty warehouses. All this led to the fact that in the fourth quarter of 2022, the revenue of DRAM manufacturers fell by 32.5%. According to experts, there has not been such a strong drop since the crisis year for the industry in 2008.
Now market representatives are looking for ways to solve the problem, but they all agree on one thing – it is necessary to reduce the production of chips for RAM. All but one participant. He, on the contrary, is going to slightly increase production. We are talking about the South Korean corporation Samsung. What is going on? Let’s try to figure it out.
Problems in both the user and corporate sectors
Industry players believe that the most actively decreasing revenue is now in the server segment of the DRAM market. Previously, sales of user systems also fell very strongly, with more or less even indicators for the corporate sector. But it seems that the latter did not manage to avoid problems. One of the indicators of this is the reduction in the cost of DDR4 in the corporate sector by about a third. As for DDR5, the drop is even higher here, about 35%.
The situation in the corporate service is affected by a drop in sales from North American cloud service vendors. They reduce the volume of purchases of all server products and reduce the pace of deployment of new infrastructure.
As for the user segment, here the main consumers of DRAM are laptop and desktop PC vendors. Previously, these companies, in order to avoid shortages, purchased large batches of RAM. Now stocks are not liquidated yet. As of the beginning of the year, PC and laptop vendors have 9 to 13 weeks of storage, and possibly more.
At the end of 2021 – beginning of 2022, some manufacturing companies launched new production lines. The calculation was that the demand for RAM would continue to grow, as it had many months before. But no, the forecasts did not come true, and instead of growth, demand showed a fall.
In the first quarter of 2022, the revenue of all manufacturers fell by an average of 4% compared to the fourth quarter of 2021. The only company that remained in the black at that time was Micron. She managed to slightly increase the amount of revenue. Not much, by 2.4%, but still much better than all other DRAM manufacturers.
As early as late 2022, many companies said they would cut capital spending. Previously, it was planned that manufacturers would gradually launch more and more new product lines. But for now, this will probably have to be forgotten. Instead, companies are starting to reduce production volumes.
How bad is it?
At the largest producers of DRAM, companies Samsung, SK Hynix and Micron, revenue decreased by 25.1%, 35.2% and 41.2% respectively. We are talking about a fall compared to the indicators of the third quarter. The same is true for smaller companies. For example, sales of Nanya, Winbond and PSMC fell by 30%, 30.3% and 39.5% respectively.
By the way, despite the drop in revenue from Samsung (note that it is less than that of other companies), it managed to increase its market share to 45.1%, while from July to September 2022 this figure was at the level of 40 .7%. What exactly the South Korean corporation undertook to achieve such a result is not entirely clear. But the efforts were clearly not in vain.
But SK Hynix and Micron are doing much worse. Their market shares are decliningfrom 28.8% in the III quarter to 27.7% in the case of SK Hynix and from 26.4% to 23% in the case of Micron.
What are manufacturers planning to do?
The main way to deal with falling prices is to reduce the production of DRAM chips. So far, we are talking about a reduction of 10-15%, which is not so much. But if this does not help, then companies will reduce production volumes even more.
So, for example, Micron is going to reduce production volumes by 10-20%, with the loading of its enterprises by only 84%. It is worth recalling that only a few months ago there was talk about the possible creation of new production lines. And now the situation has changed to the exact opposite.
As for SK Hynix, this company is going to reduce the load on its infrastructure by about 8% in the first quarter, and then by another 10%, to 82%.
But Samsung is going to do the exact opposite again. It will increase production volumes. In particular, at the Line 15 enterprise. Most likely, this is how the South Korean company plans to continue capturing additional market shares. Despite the risk, the Koreans will invest in expanding production.
Manufacturers of other electronic components and systems do the same. Thus, most companies that previously allocated large resources for the development of production have now begun to cut their budgets, reducing costs. Someone is lowering prices, because the warehouses of some companies are literally clogged with goods produced but not sold. The longer it lies, the less likely it is to sell anything at all. Therefore, companies are already launching discount programs and all that.
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In general, as we wrote earlier, 2023 can be called an annus horribilis for electronics suppliers. And it may well be that we will not see annus mirabilis very soon.