DRAM is profitable again, and NAND is finally coming to an end

Yole announced in its latest report that by the end of 2023, the DRAM industry will be at its lowest level since 2016.

However, amid an improving pricing environment, the DRAM industry's operating losses declined significantly in Q4 2023, with margins improving to -1% in Q4. Against this backdrop, Samsung and Hynix have returned to positive profit margins.

In fact, in 4Q23, Samsung's revenue share increased significantly to 45%, compared with other memory manufacturers: SK Hynix and Micron were 31% and 19% respectively.

Revenue results in 4Q23 beat expectations by $1.2 billion due to higher than expected pricing and shipments. Shipments in 4Q23 were 6% higher than expected and a significant 42% increase compared to 4Q22, highlighting the continued rebound of the DRAM market.

Demand for data center-based artificial intelligence acceleration hardware surges, and Nvidia's quarterly results break another record. Increased demand for accelerators has correspondingly increased demand for HBM, which is priced approximately six times higher than the current market average ASP, although still a relatively low share of the industry.

Yole said that as demand for generative AI acceleration hardware continues to grow, the DRAM market is recovering, with HBM and data centers leading the way. The industry's average operating margin reached -1% in the fourth quarter of 2023, with both Samsung and SK Hynix posting profits in the quarter. Additionally, Samsung's revenue share increased by 7 percentage points due to strong growth in shipments and pricing.

Reductions in fab utilization allow OEM and supplier inventories to normalize, leading to a supply-demand balance and a positive outlook for 2024. High-value products like HBM are expected to continue their rapid growth trajectory as they are key components in the data center.

In addition to data center AI needs, the wave of COVID-19 PCs is beginning to require system updates, and new smartphones supporting on-device generative AI are helping to meet consumer DRAM demand.

DRAM is everywhere. Without it, almost every aspect of the digital world would be impossible. It can be found in our smartphones, PCs, cars, and especially data centers. In fact, one way to improve a system's computing performance is to design with more DRAM.

Servers and data centers are the largest market segments for DRAM demand, accounting for nearly 50% of bit shipments in 2023. Demand growth for data center DRAM is expected to outpace the broader DRAM market for the foreseeable future, especially as new technologies emerge and HBM and CXL begin to dominate. However, from a supply and demand perspective, there may be an overabundance of DRAM. For example, DRAM revenue in 2023 hit its lowest level since 2016 as supply and demand imbalances caused prices to fall sharply, and DRAM suppliers slashed fab utilization to control inventory levels.

The technology required to manufacture DRAM is capital-intensive and consists of cutting-edge semiconductor processes. Since 2013, just three players have accounted for more than 95% of the world's DRAM supply and regularly compete for the industry's highest value slots.

Recently, China has prioritized establishing semiconductor independence, in which memory plays an important role. Companies such as Yangtze Memory in NAND and Changxin Memory in DRAM have deep pockets and are looking for more than just a foothold.

Meanwhile, Yole believes that following a sharp decline in average selling prices from the second half of 2022 to the third quarter of 2023, the NAND industry will end 2023 with its lowest annual operating margin in a decade, hovering at nearly -49%.

In 2023, NAND industry revenue will plummet to less than US$40 billion, a year-on-year decrease of -33%. These numbers mark the NAND market's lowest levels since 2016. Starting from the end of the third quarter of 2023, the production reduction measures implemented by suppliers to deal with supply imbalances began to bear fruit, and prices showed signs of recovery. Production cuts were more than 30% in the fourth quarter and are expected to remain at similar levels in the first quarter.

Looking ahead to 2024, memory vendors will carefully manage capacity utilization to sustain an undersupplied market and return margins to healthier levels. Capacity is not expected to be fully utilized until the end of 2024, and may extend into early 2025.

Yole Group expects prices to continue rising in 2024, with operating margins likely to turn positive in the second half of the year.

Yole said that in 2023, the NAND industry experienced its lowest revenue since 2016, with the total revenue of the six players being just under $40 billion. These players experienced their lowest operating margins in a decade.

However, the NAND market is expected to grow at a compound annual growth rate (CAGR2023-2029) of 21%, driven by increases in average unit content and cannibalization of HDDs by enterprise-grade SSDs in data centers. Additionally, the emergence of Gen AI is expected to help increase data generation, further improving average cell content. Mobile devices and SSDs are expected to maintain their dominance in driving NAND demand.

In the fourth quarter of 2023, strategic production reductions by all players began to bear fruit, with pricing rising by 17% and operating margins improving by -30%. Although bit shipments increased slightly by 6%, these measures improved profitability and investor confidence, proving the effectiveness of the cuts.

By 2024, the NAND industry is expected to rebound, with memory suppliers seeing a cleaner demand outlook and less excess inventory. In order to achieve profitability, suppliers will carefully manage capacity utilization to ensure that the market is slightly undersupplied.

According to Yole, the main demand growth driver comes from the consumer sector, driven by the integration of generative artificial intelligence technology into high-end mobile and PC devices. The surge is fueled by an anticipated device refresh cycle that coincides with the peak demand experienced during the COVID-19 pandemic four years ago. Additionally, demand for enterprise-grade SSDs in data center servers is expected to rebound.