DRAM Prices to Bottom out in 1Q22
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
DRAM prices in 4Q21 to be stronger than expected
We maintain BUY and TP of KRW100,000 on SEC. We remain optimistic about the company because DRAM prices and shipment negotiations have progressed without any major hitches, pointing toward stronger-than-expected prices and order placements in 4Q21; DRAM orders from North American cloud companies (e.g., Amazon, Microsoft) and PC makers (e.g., Dell, HP) are estimated to be 30% higher than anticipated based on:
(1) server investments for the establishment of metaverse platforms;
(2) growing corporate PC demand; and
(3) DRAM inventories having fallen to a third of 3Q21 levels. As a result, the drop in DRAM contract prices for 4Q21 should be smaller than predicted by market research firms (-10% QoQ to -7% QoQ).
DRAM prices to bottom out in 1Q22
For the first time in seven months, there was recently an uptick in chip orders from PC companies (e.g., Dell, HP, Lenovo). We attribute this to the following:
(1) The alleviation of supply shortage has increased demand visibility for 2022.
(2) Corporate PC demand has been surging since the kick off of the Korean government’s “Living With COVID-19” policy.
As a result, DRAM spot prices (i.e., DDR4 8GB), which are sensitive to PC demand, rose for the first time since July, leading us to believe prices are bottoming out. Since DRAM spot prices have traditionally acted as a leading indicator for contract prices, we expect 1Q22 to mark a trough for DRAM prices.
Chips to be essential for establishing metaverse
We see semiconductors, particularly high-capacity chips, emerging as a cornerstone for establishing the metaverse alongside cloud computing, 5G edge computing and headsets that support high-definition graphics (VR, XR). Metaverse headsets, the market for which is forecast to grow tenfold within the next five years, are expected to require as many memory chips as smartphones do; the release of Apple’s XR device expected in 2022 should catalyze market growth. SEC stock is up 7% from its 2021 low, making it more attractive than SK hynix, which is up 28% from its 2021 low.