Storage chips are accelerating their burst.
Investor's Network - Xie Yingjie.
From the rise of smart automobiles to the outbreak of generative AI, the storage chip market has experienced ups and downs in the past few years, and new opportunities have emerged as well.
Recently, the storage chip industry has once again topped the hot stocks list, with chip ETF rising more than 6% in the past five days. There has been much discussion in the market regarding issues such as the industry cycle hitting bottom. Upstream enterprises firmly executing inventory reduction strategies and downstream consumer electronics markets rebounding, emerging AI-related demand, and the rise of HBM (high-bandwidth memory chips) are gradually becoming the “accelerators” in the storage industry's recovery this time.
After struggling through a year in the trough, the recovery of the storage chip sector has become one of the industry's confirmed trends this year. As a barometer of the global semiconductor market, the rebound in storage chip prices may herald the arrival of a new market cycle.
The inflection point of the cycle is about to come.
Storage chip concept stocks are active against the trend.
In the secondary market, as of June 18, Shenzhen Kaifa Technology (000021.SZ), the largest independent DRAM memory chip testing company in China, has risen more than 10% in the past five days, with a latest stock price of 16.05 yuan/share and a total market capitalization of 25 billion yuan. JZD (688627.SH), which owns storage device testing equipment products, has risen by 14.2% on June 11, with a latest stock price of 24 yuan/share and a total market capitalization of 4.8 billion yuan.
Netac Technology (300042.SZ), a professional R&D and manufacturer of flash memory applications and mobile storage products, has risen more than 11% in the last five days, with a latest stock price of 52.1 yuan/share and a total market capitalization of 4.9 billion yuan; Infotmic Co., Ltd. (000670.SZ), which owns storage chip products, and Shenzhen Dawei Innovation Technology (002213.SZ), which owns embedded storage and other products, have recently seen their share prices soar in the past week.
The Hong Kong semiconductor sector has also risen synchronously, with the recent stock price increases of Hua Hong Semiconductor (01347), Semiconductor Manufacturing International Corp. (00981), Xinyi Solar (00968), and GCL Tech. (03800).
Public information shows that storage chips are semiconductor-based storage media, also known as semiconductor memories. Compared with mechanical storage such as hard disks, storage chips have higher read and write speeds, lower energy consumption, and better reliability. Data released by the World Semiconductor Trade Statistics Organization (WSTS) shows that in the global integrated circuit sector, storage chips account for 23% and are the second largest subdivision market of integrated circuits.
In the past year or so, affected by the macroeconomic headwinds globally, the IT market demand plummeted, and storage chip prices and volumes plummeted. Upstream manufacturers had to aggressively cut production.
The turning point appeared recently. Leading global semiconductor manufacturers have adjusted their capital expenditure plans, and memory chip leaders Samsung Electronics and SK Hynix plan to return DRAM wafer shipments to pre-production cut levels in the second half of 2024, ending nearly a year of production cuts.
Institutional investors have strong expectations for the bottoming and rebounding of the storage chip cycle in the second half of this year.
Recently, many market research institutions predict that the average prices of DRAM (dynamic random access memory) and NAND (flash memory) will rise across the board. According to the latest estimate from TrendForce, the seasonally-updated contract price for DRAM in the second quarter is expected to increase to 13% -18%; the updated seasonally-updated contract price for NAND flash is expected to increase by about 15%-20%.
According to data from the Semiconductor Industry Association (SEMI), DRAM and NAND Flash are the two largest segments of storage chips, accounting for 53% and 44%, respectively.
Apart from upstream enterprises firmly implementing inventory reduction strategies, the downstream consumer electronics market rebounding, emerging AI-related demand, and the rise of HBM (new type of CPU memory chip) are gradually becoming the “accelerators” in the storage industry's recovery this time.
Goldman Sachs analysts have released reports predicting that the global HBM market will grow at a compound annual growth rate of approximately 100% between 2023 and 2026, with a market size of $30 billion in 2026, up more than 30% from their March forecast.
The trends in storage chip sales are highly synchronized with those of the overall semiconductor industry. Historical data shows that the semiconductor and storage segments present a similar cyclical pattern, but the storage sector's volatility ranks first in the industry.
According to IDC's analysis, the semiconductor market will enter a new round of recovery in 2024 after experiencing a downturn in the industry cycle. Storage chips are the second sub-market of the semiconductor industry. Since the demand from the consumer market has been weak, storage chips have become one of the most impacted sub-sectors. Its recovery in the semiconductor industry also has a "barometer" significance and may indicate that the semiconductor industry will accelerate its recovery. In terms of product structure, the operating income of 10-30 billion yuan products was 401/12.88/0.06 billion yuan respectively.
However, some voices pointed out that, different from previous industry cycles, the turnaround of the storage market in this round is due to the effect of reducing supply to accelerate the industry towards supply-demand balance, rather than the driving force of demand from the downstream market being smaller than the effect of upstream factory production reduction.
The market expectation for rebound is growing.
From a global perspective, the global semiconductor industry has been following the spiral upward trend for decades, and major technological changes are the inherent driving force for the industry's sustained growth. Nowadays, the intelligentization of automobiles, VR_AR, AIOT, cloud computing, etc. will drive the semiconductor industry into a new upward trend.
The three major fields of mobile phones, PCs, and servers, together account for about 80% of the usage of storage chips. These markets are gradually emerging from the downturn. Qun Zhi Consultancy predicts that the global smartphone shipments in 2024 will be about 1.14 billion units, a slight increase of 3.1% year-on-year.
Storage chips tend to be standardized, and product substitutability is relatively high. Capital investment surges as process nodes are upgraded, making the industry have the characteristics of high entry barriers, high market concentration, and strong cyclicality. The combined market share of the top three companies in the world, South Korea's Samsung Electronics, SK Hynix, and the United States Micron Technology, is as high as 90%.
The above industry leaders recently released the latest financial performance of the quarter. Among them, Samsung's digital solutions (DS) department responsible for the semiconductor business achieved its first profit since the fourth quarter of 2022, and its storage business revenue increased by 96.1%.
In addition, after SK Hynix turned losses into profits in the fourth quarter of last year, its operating profit in the first quarter of this year reached the second highest level in the same period since 2018; Micron's net income in the second quarter of the 2024 fiscal year (ending in February 2024) was US$793 million, turning losses into profits.
In any case, as a typical cyclical growth industry, the storage market has already gotten rid of the worst moment of continuous decline in the last few quarters, and is in the dawn of a new round of growth. So can the industry continue to maintain growth in the future? Market views differ.
Some institutions believe that currently, the downstream market demand is experiencing structural differentiation. The demand for chips related to automotive electronics and new energy generation terminals is strong, while that for chips related to consumption and communication has not yet emerged from the downturn. Some global storage chip companies will be listed one after another, which may have an adverse effect on the supply-demand relationship.
Xiangcai Securities stated that although the recovery expectation for the traditional consumer electronics sector has turned stronger, there has not yet been a significant improvement in sales side. Some companies are still in the phase of actively destocking and reducing capital expenditures, and it is recommended to closely monitor changes in consumer electronics terminal demand.
More opinions believe that short-term fluctuations do not change the long-term high prosperity of the industry.
Cinda Securities pointed out that the storage chips used in AI servers mainly include high-bandwidth memory (HBM), DRAM, and solid-state drives (SSDs). The work scenario for AI servers requires larger capacity, higher performance, lower latency, and faster response speed. According to Micron's estimate, in AI servers, the number of DRAMs is eight times that of traditional servers, and NANDs are three times that of traditional servers. This round of AI wave has essentially promoted the demand for storage chips.
With the rapid development of intelligentization in various fields, the demand for DRAM and NAND in AI servers is also increasing day by day. Recently, manufacturers around the world have successively developed and launched large-model products of generative AI (AIGC), and training and deploying large models require a large number of AI computing chips to provide support. At the same time, a large amount of data set transmission and storage have also put forward higher requirements for storage capacity.
In addition, the large data sets of large models require NANDs with larger capacity to store data. The GPT-3 model launched by OpenAI, an American artificial intelligence research company, has already reached 175 billion parameters, and it is expected that GPT-4 will require more parameters.
In the automotive field, Kaiyuan Securities stated that in the promotion of electrification and intelligentization, the continuously growing amount of data requires automotive storage chips to have faster data processing speed, larger data storage capacity, and higher stability. Micron predicts that by 2025, the average car will carry 16GB of DRAM and 204GB of NAND. This means that compared with 2021, the capacity of DRAM and NAND required for an ordinary car in 2025 may increase three times and four times, respectively. (Produced by Thought Finance)