Global chip sales: Americas surged 11.4%, China fell 16.2%

According to ICinsights, the DRAM market typically sees strong sales in the second half of the year, when system manufacturers place orders for the memory to be used in a new generation of products they plan to release during the year-end holiday season. This situation has not occurred this year. Weak economic conditions and high inflation have slowed global demand for personal computers, mainstream smartphones and other consumer electronics.

As a result, DRAM demand is on a downward spiral, with sales now expected to decline -40% in 2H22 to $29.3 billion, compared to $49 billion in 1H22 (Figure 1). The DRAM market is expected to decline by -18% throughout 2022.

The first signs of a major correction in the DRAM market began to emerge at the end of the second quarter of 2022 after strong sales in the first few months of the year. Micron, for example, reported an 11% sales increase in its third quarter of FY22 (ended in May). The looming market collapse wasn't evident in its quarterly sales results, but then the company dropped the bomb by giving -17% sales guidance for its fiscal fourth quarter, which ended in August. Micron's actual sales fell -23% in 4Q22, well above its guidance.

At the end of the year, Micron also said it expected its annual DRAM bit shipments to decline by -1%, further evidence of the rapid and severe downturn in the DRAM market.

SK Hynix (23%) and Samsung (-20%) also announced a sharp decline in their memory sales in 3Q22, and expect the DRAM market weakness to continue until the end of this year, and at least until 1Q23.

The three major memory makers noted on earnings calls that inflation has eroded consumer discretionary spending at a time when sales typically heat up each year. Coupled with ongoing supply chain disruptions and inflated inventory levels, a DRAM market correction is all but inevitable.

Over the past 30 years, the DRAM market has been characterized by spectacular growth followed by years of devastating collapse (such as 2022), as illustrated by the sawtooth "curve" in Figure 2. Over the past four years, the DRAM market declined by -37% in 2019, grew by 42% in 2021, and is expected to decline by 18% in 2022. With such drastic fluctuations, it’s no wonder that the number of digital DRAM suppliers has dropped from more than 25 30 years ago to 3 today.

Figure 3 shows quarterly trends in DRAM shipment value and shipment volume. This picture got me thinking. The sharp decline in shipments in the third quarter of 2022 is understandable. However, I didn’t expect that even shipments would drop so sharply.

Figure 3: DRAM shipment value and shipment trends by quarter (as of the third quarter of 2022) Source: Author based on WSTS data

DRAM shipments have the following historical background. First, it increased slightly from about 1991 to 2003. However, from 2003 to 2011, shipments grew rapidly. This is because developing countries such as China, known as the BRIC countries, have achieved economic development, and the demand for DRAM has rapidly expanded in PCs, mobile phones (later smartphones) and various electronic products.

However, from 2011 to 2018, DRAM shipments per quarter remained stable at around 4 billion units. This is because many existing DRAM manufacturers have been eliminated. Since Elpida Memory went bankrupt in 2012 and was acquired by Micron Technology of the United States, DRAM manufacturers are basically Samsung, SK Hynix and Micron. Believe this is due to the merger into the company. The author speculates that these three companies made production adjustments on the basis of "secret collusion", causing DRAM shipments to stabilize.

However, DRAM shipments have increased year by year since 2019, reaching approximately 5.5 billion units. The reason for this is as follows. Until around 2014, the primary use of DRAM was in PCs. After 2015, mobile phones (i.e. smartphones) have become the protagonist of DRAM. It is expected that after 2022, server DRAM will replace mobile devices and become the main battlefield of DRAM (Figure 4).

Figure 4: DRAM output by application

In fact, according to "Server DRAM becomes a cash cow for Samsung Electronics and SK Hynix" released by Business Korea on November 2, 2022, server DRAM will reach 68.486 billion gigabits by 2022, while mobile DRAM will reach 66.272 billion gigabits . Reportedly beyond the scope of use.

As the main battlefield of DRAM shifts to servers, Samsung, SK Hynix, and Micron gave up their "secret collusion" and began to compete for dominance in server usage. Therefore, we believe DRAM shipments will increase after 2019.

As evidence of this, as shown in Figure 5, DRAM shipments did not decrease significantly during the memory recession and the COVID-19 storm. However, after the collapse of the new crown special demand, there will be a decrease of 851 million from Q2 (5.335 billion) to Q3 (4.484 billion) in 2022. This surprised me. Because of this, I'm beginning to think that this semiconductor recession could be as severe as the Lehman Brothers shock, or even worse.

Figure 5: DRAM quarterly shipment value and shipment volume

Source: Author based on WSTS data