Q3 DRAM sales bit shipments surge, output value grows 4% QoQ

According to a survey by TrendForce Semiconductor Research Center (DRAMeXchange), DRAM inventory on the demand side has returned to a healthier level in the second half of 2019. In addition, some companies have prepared inventory in advance in the third quarter to avoid the negative impact of possible tariff increases in the future, which has led to a significant increase in DRAM suppliers' sales bit shipments in the third quarter, and in turn pushed up the total DRAM output value by 4%, ending three consecutive quarters of decline...

Looking ahead to the fourth quarter, despite the high base in the third quarter, the three major DRAM manufacturers still expect shipments to continue to grow, driven by demand for servers and mobile phones.

Looking at the revenue performance of each manufacturer in the third quarter, Samsung benefited from the strong advance stocking of Chinese mobile phone manufacturers and the gradual recovery of server demand. Its sales bit shipments grew by more than 30%, driving revenue to grow by 5% from the second quarter to US$7.12 billion; SK Hynix's sales bit shipments grew by about 20%, and its revenue increased by 3.5% quarter-on-quarter to US$4.41 billion. As for Micron, due to the low base period in the second quarter, its bit shipments grew by nearly 30% in the third quarter, with revenue of US$3.07 billion, but its market share fell below the 20% mark. TrendForce believes that Micron's lack of new plants (greenfield) to increase wafer investment may lead to continued compression of market share.

Affected by the decline in DRAM prices in the third quarter, suppliers' profit margins are compressed

Despite the increase in shipments in the third quarter, the operating profit margins of DRAM suppliers declined due to the impact of the nearly 20% drop in overall industry prices. Samsung's operating profit margin fell from 41% in the previous quarter to 33%, which is close to the company's medium- and long-term low target of 30%. TrendForce believes that Samsung's willingness to continue to lower prices will be very limited. SK Hynix's cost reduction was more obvious in the third quarter due to the conversion of part of its server memory production capacity to mobile memory. In addition, the second quarter had a low base period, so its operating profit margin fell slightly from 28% to 24% in the third quarter.

Micron's price drop in this quarter (June to August) was slightly higher than that of Korean manufacturers (July to September), so its operating profit margin fell more sharply, from 35% in the second quarter to 24%. Looking ahead to the fourth quarter, with only a slight drop in price and continued cost optimization, the profitability of the original equipment manufacturer will have the opportunity to maintain the current level and will not fall sharply again.

From a technical perspective, Samsung's wafer production plan has remained roughly unchanged since the beginning of this year. Looking ahead to next year, Line 13's DRAM production capacity will be gradually transferred to the production of image sensors (CMOS image sensors), but the second plant in Pyeongtaek will start mass production to slow down the decline in Line 13's wafer production, and at the same time introduce 1Znm mass production. Overall, Samsung's total wafer production will not change much next year, and the proportion of 1Znm will not be too high, maintaining a cautious attitude to increase output. In addition to continuing to transfer M10's DRAM wafer production to the production of image sensors, SK Hynix will also increase the output of M14 in its plan for next year. As for the two new plants in Wuxi, China, affected by the Sino-US trade war, the wafer production plan tends to be conservative. As for Micron, Taiwan Micron Memory (formerly Rexchip) has already used 1Xnm for all production, and the next goal will be to directly produce 1Znm, but the actual contribution will start from 2020; while Taiwan Micron Wafer Technology (formerly Inotera) has already introduced more than half of the proportion of 1Xnm, and 1Ynm accounts for about 30%.

As for Taiwanese manufacturers, Nanya Technology benefited from a more than 35% increase in sales bit shipments in the third quarter. Despite a double-digit decline in quotations, revenue still grew by 18.7% from the previous quarter, but gross profit margin/operating profit margin continued to decline. Given the relatively high base period, shipments in the fourth quarter may show a decline, and it will take time for profitability to rebound. As for Winbond, the overall operating performance remained stable, with DRAM revenue growing slightly by 5% from the second quarter. Powerchip Technology was affected by high inventory levels at its clients, and its shipments declined, resulting in a 6% decline in revenue (revenue calculation is mainly for standard DRAM products produced by Powerchip itself, not including DRAM foundry business).