Solid NAND Supply/Demand Continues

The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. -- Ed.

 

Samsung Electronics (SEC) has announced plans for NAND investment at Pyeongtaek line 2. We expect the investment to contribute favorably to the performance of semicon equipment firms from 2H20 into 2021. We note that memory players are predicting positive NAND demand in the days to come.

SEC expands NAND investment

Following its announcement of foundry investment, Samsung Electronics (SEC) has made public plans to invest in NAND production at Pyeongtaek line 2. We expect construction of the clean room to be completed by 4Q20, with equipment likely being installed from 4Q20 to 2Q21. Mass production should kick off in 2Q21 at an estimated scale of 60K wpm. SEC’s NAND capacity investment for 2020 is now predicted to increase from 65K wpm to 85K wpm. We view this development as being positive for NAND-related equipment plays.

In light of the recently announced investment plans, domestic equipment makers’ earnings, which were expected to concentrate in 1H20, may now find momentum in 2H20 as well. Moreover, the execution of SEC’s foundry and NAND investment, as well as SK Hynix’s M16 fab investment, is to concentrate more in 2021 than in 2020. Accordingly, earnings at equipment makers should feel a greater boost next year.

Solid NAND supply/demand continues

With supply-demand conditions remaining more favorable than expected, SEC is increasing its NAND investment. Currently, NAND inventory levels sit at only two weeks, following insufficient supply due to minimal investment from 2019. Moreover, SEC and SK Hynix are shrinking their 2D NAND capacities. In an effort to secure the profitability of its NAND business, SK Hynix is focusing on expanding the 96-layer process without adding capacity. And, to meet the current SSD demand boom, Western Digital and Kioxia are focusing on the 96-layer process (higher yield) rather than the 112-layer process, leaving production levels at their new joint K1 fab relatively unchanged.

We note that the average NAND content of 5G smartphones (including the iPhone 12 to be released in 2H20) is on the rise. And, thanks to increased telecommuting amid Covid-19, PC SSD demand looks solid. Global NAND demand is forecast to increase 25% y-y in 2020, exceeding the predicted supply growth of 22% y-y. In particular, the fact that Sony’s PS5 (to be launched in 2H20) is to be equipped with an SSD instead of an HDD?a first for the console series?should contribute to strengthening NAND demand. Assuming that the PS5 comes equipped with 825 GB of NAND per unit and sells 20mn units pa, 2020 global NAND demand should climb 5%.

 

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