DRAM collapses, prices fall further

According to data released by IC Insights in August 2022, the strong DRAM market upturn that started in the second half of 2020 and lasted until May 2022 has ended. After hitting the highest monthly sales in more than two years in May, DRAM sales fell 36% in June and another 21% in July. The market crashed so quickly that the DRAM market size in July was about half of what it was in May (Figure 1). Concerns about soaring inflation and a recession have dented consumer spending on new smartphones, computers, televisions and other electronics. In turn, system manufacturers have scaled back new DRAM orders, citing the need to deplete existing inventories they have accumulated.

figure 1

Without DRAM suppliers' comments on developing markets, the sharp decline in DRAM sales in June and July might have been considered a short-term anomaly. For example:

• Micron guided for fiscal fourth-quarter sales (ending August) to be -21%. Micron plans to report its fourth quarter and full-year sales results on September 29, 2022. Their results could set the tone for the rest of the year for the rest of the year.

• Nanya's DRAM sales (in US dollars) in August 2022 fell 53% from March DRAM sales.

• "The second half of this year looks bad, and so far, there doesn't seem to be any significant improvement next year," said Kyung Kye-hyun, Samsung's co-chief executive and head of its semiconductor division.

Industry veterans know that when the DRAM market begins a cyclical downturn, it typically declines sharply. Figure 2 shows several DRAM market crashes since 2000. Each downturn lasted at least 5 quarters, and each time caused the DRAM market to fall by at least 41%. Given the current outlook, IC Insights estimates that the DRAM market will be 38% smaller in 3Q22 than at its peak in 3Q21. In addition, IC Insights also expects the DRAM market to see more downside in the fourth quarter of 2022 and early next year.

figure 2

Sales of processors and memory used in client PCs are falling much faster than expected, according to data from AMD, Intel and South Korea's Trade Ministry. Media reports said that memory shipments fell by nearly 25% last month due to weak demand in Europe and the United States and China's blockade.

Just less than a month ago, IDC said that PC shipments would fall to 305.3 million units in 2022, a 12.8% decrease from 348.8 million units in 2021. Revisions to 2022 PC shipment forecasts are primarily based on sales forecasts from PC manufacturers and companies such as AMD and Intel. But things quickly turned worse than expected.

Earlier this year, Intel expected PC sales to decline by about 10% year-over-year and begin to rebound in the second half of 2022. AMD is more pessimistic and predicts that the PC market will decline in 2022 compared to the previous year. But executives from both companies told Bernstein analyst Stacy Rasgon that the market was trending worse than expected, Barrons reported.

CPU sales are an important indicator of the health of the PC market. Memory supplier earnings are another good indicator of PC market expectations. DRAM shipments fell 24.7% in August compared with the same period last year due to lower demand for PCs in Europe and the United States and the COVID lockdown in China. In contrast, South Korea's DRAM sales fell 7% year-on-year in July, DigiTimes reported, citing data from Bloomberg and South Korea's Ministry of Trade.

That's bad news for South Korea, which accounts for a third of the country's technology exports. DRAM accounts for about half of South Korea's memory chip sales, with 3D NAND accounting for the other half. Overall, South Korea's technology exports fell 4.6% year-on-year in August.

South Korea-based Samsung and SK Hynix control about two-thirds of the global 3D NAND and DRAM memory market, so if their chip sales have problems, it's a clear sign that demand is declining. What remains to be seen is whether the two companies will lower the prices of their 3D NAND and DRAM or reduce production to keep prices at comfortable levels.

Falling memory prices may benefit the continued transition to DDR5 memory and the cost of SSDs with PCIe 4.0 x4 and PCIe 5.0 x4 interfaces. But this will affect the ability of companies such as Samsung, SK Hynix and Micron to invest in future product and process technology transformation, which is not particularly beneficial in the long run.

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