Rising Demand for AI Products
South Korea’s semiconductor industry is focusing on improving its financial health in the second half of the year, pivoting around High Bandwidth Memory (HBM) for DRAM and reducing NAND output.
On Sept. 12, the semiconductor sector anticipates that DRAM prices will cease their decline and enter a significant upward trend in the second half of the year. This optimism is driven by the expected increase in sales of high-end memory products, such as DDR5 and HBM, due to the rising demand related to artificial intelligence.
HBM, mainly used in Graphics Processing Units (GPU) for AI data processing, is shifting from HBM2e (3rd generation) to HBM3 (4th generation). Industry leaders Samsung and SK are getting attention from global clients because of this transition.
DDR5, primarily used in mobiles and PCs, is also anticipated to rebound in price due to replacement demand. While the price of the general-purpose DDR4 continues to be weak, the recent DDR5 (16 GB) has risen from US$3.17 to US$3.40, heightening expectations.
If the industry reduces the supply of general products with high inventory and increases the share of next-generation DRAM, it can maximize profit enhancement.
In contrast to DRAM, where profit improvement is evident with the foundation of HBM and DDR5, NAND is trying to bounce back through more aggressive reductions.
Currently, the NAND business structure is competitive with several suppliers, including Samsung, SK, KIOXIA, and Western Digital, but no distinct inventory build-up movement is detected in key markets like mobiles.
Taiwanese market research firm TrendForce anticipates a possibility for NAND prices to halt their decline and pivot to an increase in the fourth quarter. Specifically, after witnessing a decline of 10-15% in both the first and second quarters, NAND prices are projected to decrease by 5-10% in the third quarter and increase by 0-5% in the fourth.
This outlook is grounded in Samsung’s aggressive reduction policy given its position as the leading market shareholder for NAND. TrendForce predicts that following their announcement of cutbacks for the second and fourth quarters Samsung has reduced its NAND production by 25%, and this reduction might stretch up to 35% by the end of the fourth quarter. After its Q2 financial results announcement, an SK hynix representative stated in a conference call that “NAND inventory levels are higher than DRAM, and profitability is poor,” revealing plans to “further reduce production by 5-10%.”
Positive signs due to these reduction measures are also being noticed. Guo Mingchi, a securities analyst at TF Securities, shared via social media that “following Samsung’s price hike in August, Micron began to increase the contract prices for NAND Flash wafers by about 10% starting September.” An industry insider opined, “With both companies, which combined account for nearly 50% market share based on Q1 figures, embarking on further reductions, the underperformance in the memory sector that’s affecting their financials should recover.”
It is believed that if global NAND supply, led by Samsung, decreases substantially, the overall profitability transition for the memory semiconductor sector will be expedited.