Samsung expands storage capacity, Chinese manufacturers face fierce competition
Source: This article was contributed by the author Hu Shuo, thank you.
Earlier, the well-known blogger "Fan Tong Dai Laoban" wrote an article titled "Memory War", which was widely circulated in the author's circle of friends. In the article, he mentioned: Samsung fully utilized the strong cyclical characteristics of the memory industry, relying on government transfusions, and when prices fell, production was oversupplied, and other companies cut investment, it expanded production against the trend, further reducing product prices through large-scale production, thereby forcing competitors to exit the market or even go bankrupt. People call it the "counter-cyclical law". In the past development history, Samsung has used the "counter-cyclical law" three times and achieved its position as the leader in memory. And it has received high returns in the past year.
Samsung stock performance over the past year
Morgan Stanley, a well-known international analysis agency, also said in a recent report that as the "memory cycle" is about to reach its peak, Samsung's stock has soared 120% since January 2016, and Samsung's revenue has also been rising steadily over the past year. Earlier, they even dethroned Intel, which had been the leader in the semiconductor industry for more than 20 years, and became the overlord of the semiconductor industry.
As shortages and price increases intensify, many analysts believe that Samsung's revenue will continue to rise in the future. However, in the view of Morgan Stanley, the peak of the storage cycle is about to end, and the storage industry will be cold by 2018. They said that in the fourth quarter of 2017, the market has seen the trend of NAND Flash prices starting to turn around, and as for DRAM demand, it will also weaken in Q1 2018. By 2019 or 2020, the supply of storage will increase significantly, and there will be a risk of oversupply in the market, and prices will fall accordingly. For the storage suppliers that China is building, this may be a big challenge beyond technology.
Morgan Stanley's report indicated that there are signs that the prices of mobile storage and entry-level SSDs have been on a downward trend since the fourth quarter of this year. After communicating with people in the storage industry chain, they believe that the price reduction faced by NADN Flash will far exceed market expectations.
In their opinion, the price of NAND Flash has entered a turbulent period since Q4 2017. This is a chain reaction caused by high prices. The supply of NAND has gradually begun to exceed the demand. This is mainly because the problem of insufficient production capacity caused by the transition from flat to 3D has been initially alleviated. They believe that by Q1 2018, the average price of NAND will drop by 19% year-on-year. Morgan Stanley believes that the oversupply of NAND Flash will quickly undermine the current supply and demand balance. By the second half of the year, the price may be 30% lower than it is now. This is their estimate based on a model.
NAND performance differences between Samsung factories
Morgan Stanley also said that by 2018, Samsung's NAND FLASH shipments will increase by 36% year-on-year. They predict that Samsung's growth in 2017 will be mainly contributed by the 50K 3D NAND in the Pyeongtaek plant, and this number will reach 100K by Q4 2018. However, the overall increase in quantity should still be in the single digit. According to Morgan Stanley's forecast, by 2018, Samsung's 3D NAND output will reach 320K/month, an increase of 18% year-on-year.
Samsung NAND market share
Morgan Stanley is still relatively positive about DRAM. In their view, DRAM prices will remain at a relatively healthy level in the next 8 to 10 months. This is partly because Chinese mobile phone manufacturers are promoting the introduction of 6GB DRAM into mid- and low-end mobile phones, which will increase the demand for DRAM and ensure the health of DRAM. In Morgan Stanley's view, the steady growth of storage in data centers will continue.
Morgan Stanley believes that the average price of Samsung DRAM will increase by 2% year-on-year in the first quarter of next year, and will increase by 4% year-on-year in 2018. During this period, the demand for servers will remain strong, but the prices of mobile devices and PCs will decline, but we are still optimistic about the price trend of DRAM in 2018.
Morgan Stanley believes that Samsung's DRAM shipments will grow by 18% year-on-year in 2018, exceeding the 14% expected. Roughly estimated, Samsung's Pyeongtaek plant currently has a DRAM production capacity of 20K per month, and by 2018, this number will reach 60K. By expanding production capacity, Samsung will further consolidate its DRAM market share next year.
According to Morgan Stanley's forecast, Samsung's Line 11 30K DRAM capacity will be converted to 10K CMOS. Line 16's planar NAND will be converted to 3D NAND, which will cause a sharp drop in capacity. Samsung also said that it will convert 60K to 70K capacity to 3D NAND, and then convert the remaining planar NAND capacity to 30K DRAM.
From the perspective of equipment investment, the equipment of the 2F West plant of Samsung's Pyeongtaek plant will be put into operation, which means that in 2018, Samsung will consume 50Kwpm more wafers. In a recent statement, DRAM equipment supplier Tepco also stated that they changed their DRAM revenue forecast for 2017 from the previous 10% to 50%. Morgan Stanley also revealed that after communicating with Samsung's people, they learned that the DRAM technology transfer of their Pyeongtaek plant has been basically completed and the production capacity is basically on track. Now that the clean room of Samsung's Pyeongtaek plant has been built, they can introduce DRAM equipment in a planned manner by early 2018, which will bring more wafer expansion, which means that by the second half of 2018, the price of DRAM will be reduced. The newly increased wafer production capacity can at least meet their 20% growth target next year.
Samsung's DRAM revenue is expected to increase by 24% to W45.7tr in 2018, accounting for 16% of total sales. Operating profit will increase by 60% compared to the previous year.
Samsung's global DRAM market share
Samsung Fab DRAM production
When storage supplies start to run tight, customers typically build up inventory buffers to avoid being caught off guard when shortages become severe, but this often leads to oversupply and slumping prices.
After conducting research meetings with major OEM manufacturers such as Apple, Cisco, Dell/EMC, Hon Hai, Inspur, HP, Hewlett Packard Enterprise, Lenovo, Quanta and Wistron, we found that current inventory levels have returned to the peak in the first quarter of 2015.
OEM inventory rate in Q1 2015
Morgan Stanley said Samsung will be the first victim of the cyclical decline in storage.
From the Morgan Stanley report, we can see that storage accounts for 60% of Samsung's operating profit. Considering the cyclical decline of storage, they believe that Samsung will face the risk of recession. According to past research, Samsung's stock price fluctuations are closely related to the price trend of storage.
Samsung's stock price is closely linked to DRAM price movements
Samsung's stock price is closely related to the price of NAND Flash
However, Morgan Stanley also emphasized that Samsung will have an annual growth rate of 23% in the coming year, which looks good, but it is a significant decline compared to 95% in 2017. They also said that the pessimism about Samsung has little to do with Samsung's own business model. The declining PC industry also casts a shadow on Samsung's future. However, based on past experience, the final result may be unknown.
From Mr. Dai's article, we can see that the United States, Japan, and Taiwan have almost become stepping stones on the road to Samsung's memory development. And from the Morgan Stanley report above, Samsung has made a lot of money from the surge in memory prices over the past year or so. Now that the process transfer has been completed, prices have begun to fall, but it is at this moment that the products of a number of newly established memory manufacturers in China may begin to be launched in the next few years. From this aspect, the price trend of Samsung's memory will be a big challenge to the rise of Chinese memory.
Let’s take NAND Flash as an example first.
Yangtze Memory Technologies, a subsidiary of Tsinghua Unigroup, is investing heavily in the research and development of 3D NAND Flash. In an interview with Digitimes in April this year, Gao Qiquan of Yangtze Memory Technologies said that they have gathered 500 R&D personnel in Wuhan to invest in the research and development of 3D NAND, and will provide 32-layer 3D NAND samples by the end of this year, which will be a milestone for Yangtze Memory Technologies' technological independence. After that, they will engage in 64-layer technology, and only when the technology matures will Yangtze Memory Technologies invest in 3D NAND mass production.
Gao Qiquan said that by then the technology gap with international giants such as Samsung Electronics, SK Hynix, and Toshiba will be shortened to about one generation.
On November 19, Zhao Weiguo, chairman of Tsinghua Unigroup, said in an interview with CCTV's "Dialogue" that Yangtze Memory Technologies has gathered 1,000 people, spent two years on R&D, and invested $1 billion to finally develop a 32-layer 64G memory chip. When asked about the gap with the international level, Zhao Weiguo responded: "If Mercedes-Benz and BMW are ranked first, Audi is probably the second. I think we will reach the level of Passat by 2019. It is still a little behind Mercedes-Benz and BMW, but we basically have both, which is equivalent to having a place in the market." For Yangtze Memory Technologies, if it faces the low-price impact of international giants such as Samsung at this critical juncture, its market advantage is very small.
Some people may ask why domestic companies are not encouraged to support domestic chips.
For example: suppose there are two products, one high and one low. If the quality of the low one is not too different, you may try it for cost; if the price of the two products is the same. In a fully competitive market environment, a mature product that has been verified for many years and a new product, which one would you choose? The answer is self-evident. Therefore, the editor believes that Samsung is more or less preventing the rise of Chinese storage by increasing its production capacity after a year of great profits.
The same is true for DRAM. However, since the development technology of DRAM is higher than that of NAND Flash, the development of the domestic DRAM industry is relatively backward, while the price of Samsung's DRAM has not fallen so fast. Considering the development trend of Samsung's two main storage products, the domestic storage industry is facing huge pressure and challenges as soon as it is born.
However, storage, as an important semiconductor device, accounts for one-third of the output value of integrated circuits, which is very important for Chinese manufacturers with many OEM manufacturers. How to promote the development of independent and controllable products has become the focus of contemporary Chinese integrated circuit workers. Of course, in the process of development, it is impossible to expect competitors to be kind to oneself. How to find the right reason for one's own development and promote one's own development is the key to success.
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