Another NAND flash memory price increase! Maybe as high as 55%!

According to industry sources, Western Digital has informed customers that the price of NAND flash memory may increase by as much as 55% in the next few quarters.

This is the first market and price adjustment since Western Digital plans to merge or spin off the dynamics.

Two months ago, Western Digital (WDC) and Kioxia abandoned memory chip merger talks. But on an investor call in October, Western Digital said it planned to spin off its flash memory business into a separate business unit and become a pure-play NAND company backed by a joint venture with Kioxia.

The spin-off is expected to be completed in the second half of 2024. Below is a slide from the announcement summarizing the company's plans for the spin-off.

Details on WDC spin-off of NAND flash memory business

The company also sheds some light on its hard drive and flash memory businesses, as shown below.

HDD and flash memory separation business analysis

WDC's hard drive business is second only to Seagate, and Toshiba is the third largest hard drive manufacturer. WDC said it is planning to use HAMR HDD. Seagate is currently validating HAMR high-capacity drives for the enterprise and data center markets.

WDC said its HDD business is expected to be approximately $25B in calendar year 2025, with a projected cumulative annual growth rate (CAGR) of 12% between 2022 and 2025. The company said its HDD market share will be 38% in 2021 and 39% in 2025. 40% in CY22 and 1H2023.

WDC said it expects its NAND flash memory business to be approximately $89B in calendar year 2025 (expected to be $59B in 2022), with a compound annual growth rate of approximately 15% from 2022 to 2025. The company estimates its NAND flash memory market share to be 14% in the first half of 2023, 14% in 2021, and 13% in 2022.

In addition to news of plans to spin off the company's flash business, WDC also reported that its flash bit shipments increased 25% sequentially and 49% year-over-year, and plans to transition client SSDs to BiCS6 with QLC flash in 2019. 2024 Year.

26TB UltraSMR HDDs account for nearly half of nearline EB HDD shipments, and WDC says it is making progress with its 28TB UltraSMR drive qualifications and has developed a roadmap for 40+TB HDDs. Total revenue last quarter was $2.7B and non-GAAP earnings per share (EPS) were -$1.76. The gross profit margin of flash memory is -10%, and the gross profit margin of HDD is about 22%. HDD EB shipments fell 5% from the previous quarter, and the average HDD selling price was US$112.

What impact will the spin-off of WDC flash memory business have? Jim Handy, an analyst at Objective Analysis, said the spinoff could benefit shareholders, who will now receive returns from two companies instead of one. But he believes that otherwise the impact on the market will not be too great because there will be no more or fewer flash memory suppliers than before the split.

WDC has decided to spin off its flash memory business into an independent company by the end of 2024. This puts an end to rumors of a merger between Kioxia and WDC's flash memory businesses, at least for now. Shareholders may benefit, but this may not have much of an impact on the market.

Regarding rising prices, in terms of industrial supply, the production reduction status of the three major memory original manufacturers: Samsung reduced DRAM production by 30% in the fourth quarter, SK Hynix and Micron reduced production by 20%, and original manufacturers reduced NAND production by even more. High, production cuts by the three major suppliers are expected to continue until mid-2024, and capital expenditures and output will focus on more profitable products, such as high-bandwidth memory (HBM) and DDR5.

Industry insiders believe that the current increase in memory quotations is mainly due to suppliers' production cuts. However, as the demand for the three major terminals of mobile phones, PCs and servers slowly recovers, it will help to improve the supply and demand structure and industrial inventory of the memory industry. The total memory quotation, whether it is spot price or contract price, has turned into an upward cycle, and the market outlook can be viewed positively.

The upward trend in memory prices started with DRAM and has now extended to NAND Flash. The combination of production cuts and demand recovery led to a successful turnaround. Samsung Electronics and SK Hynix are also expected to improve their performance at a faster pace.

Market research firm TrendForce said on November 9 that Samsung Electronics expects NAND prices to rise by 10% to 15% in the fourth quarter of this year. It is expected to grow another 10% to 20% in the first half of next year.

The actual increase in NAND prices has already begun. Prices for general-purpose 128Gb NAND, used in memory cards and USB devices, have risen 1.59% as of October, according to market research firm DRAMeXchange. This is the first rebound since July 2021.

Although demand recovery remains sluggish, production cuts have driven up prices. Unable to afford to sell at a loss, suppliers have extended production cuts below cost. In fact, it is reported that Samsung Electronics will expand NAND production cuts to 40% to 50% in the first half of next year.

SK Hynix said in its third-quarter earnings call last month, "NAND inventory is higher than DRAM. We will maintain a conservative NAND production method for the time being."

In addition, shipments of smartphones and PCs also showed signs of growth. According to KB Securities, smartphone and PC shipments next year will increase by 5% from the previous year, reaching 1.2 billion units and 260 million units respectively.

For smartphones, growth is expected to be driven by accumulated replacement demand and the recovery of demand in China's mobile phone market. As for PCs, it is expected that due to the impact of stopping support for "Windows 10" in 2025, enterprises will have a need to replace PCs.

In particular, the continued implementation of semiconductor sanctions by the United States has caused Chinese mobile companies to increase inventory, which is seen as a positive factor. As they expand their orders, this supports price increases.

As DRAM prices rise and NAND prices rise, the financial performance of Samsung Electronics and SK Hynix is ​​expected to accelerate recovery.

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