According to TrendForce research, looking at NAND Flash wafers, the pricing of which more sensitively reflects the market, suppliers are increasingly motivated to cut prices in exchange for sales due to weak retail demand since March and a more conservative outlook for shipments of other end products. The price of NAND Flash wafers is expected to begin falling in May and the supply of NAND Flash will gradually overtake demand in 2H22. The price decline of NAND Flash wafers in 3Q22 may reach 5~10%.
At the same time, TrendForce indicates that February’s contamination incident at Kioxia was expected to tighten the market in 2Q22 and 3Q22. However, as a consequence of rising inflation and the war between Russia and Ukraine, market demand for consumer products in the traditional peak season of the second half of the year is trending conservative and the prices of client SSD, eMMC, and UFS in 3Q22 will be flat compared to 2Q22, breaking from the original expectation that prices may rise. In terms of enterprise SSDs, as demand for data centers remains strong, no significant correction in demand has yet been observed. However, as the overall NAND Flash market gradually moves into oversupply, prices will only grow slightly by approximately 0~5% in 3Q22.
Weakening demand in a period of unabated production expansion, NAND Flash may face oversupply in 2H22
From the perspective of demand, due to the war between Russia and Ukraine, rising inflation, and the pandemic in China, overall demand for consumer electronics is weak. Demand for Chromebooks dwindled rapidly at the beginning of 2022 as exogenous demand from the pandemic disappeared. In terms of conventional notebooks, the situation with commercial models and consumer models present a divergence. Demand for commercial notebooks is benefiting from a return to the office occurring in many countries, while the opposite is true for consumer notebooks. Therefore, overall demand for notebooks in 2022 will be lower compared to demand in 2021. In terms of smart phones, the production volume of Chinese brands has been suppressed due to China’s flailing against the pandemic and government lockdowns stemming from a continued insistence on a dynamic zero-COVID policy, resulting in continuous downward revisions of global smart phone production for 2022.
In terms of supply, Samsung is focusing on substantial future growth in the enterprise SSD sector and continues to maintain its original capacity expansion plan, especially after its NAND production line was derailed due to the Xi’an lockdown at the end of last year. In order to stabilize future plant operations, the capacity of its P2L fab in South Korea continues to increase. Yangtze Memory Technologies (YMTC) will also expand its wafer input plan in 2H22. Since the 128L yield rate has reached the company’s goal and it had successfully broken into the tier 1 smartphone supply chain in 1H22, YMTC will also accelerate production at its second factory in Wuhan. Therefore, TrendForce indicates, since an overall weakness in demand will linger in 2022 yet certain manufacturers will maintain a pattern of expanding production, the NAND Flash market will face oversupply in 2H22. As mentioned above, the prices of various products will be flat or experience reduced growth in 3Q22.
According to TrendForce research, demand continues to weaken due to modestly high inventories maintained by buyers and sellers, coupled with the recent impact of the Russian-Ukrainian war and rising inflation on PCs, laptops, and smartphones. However, overall NAND Flash supply has been significantly downgraded in the wake of raw material contamination at Kioxia and WDC in early February, becoming the key factor in a 5~10% NAND Flash price appreciation in 2Q22.
In terms of Client SSD, the Russian-Ukrainian war has compelled PC OEMs to adopt a conservative stocking strategy for orders in 2Q22, which may continue affecting orders during peak season in 2H22, and revising 2022 shipment targets downwards. This year, SSD output has officially stepped out from the shadow of the semiconductor shortage. As Kioxia’s production capacity gradually recovered to supply SSD products in May and production capacity continues to roughly meet customer demand, suppliers have adopted a more aggressive pricing strategy. Price growth in 2Q22 is forecast to moderate to 3~8% compared with original expectations.
In terms of Enterprise SSD, as procurement capacity and orders for servers and hyperscale data centers grow and lead times on Enterprise SSD products balloon due to material contamination at Kioxia and WDC, clients immediately turned to Samsung and Solidigm looking for supply. Since the supply of PCIe 4.0 products is limited, suppliers have adopted a tough price negotiation policy which will drive the price of enterprise SSD up by 5~10% in 2Q22.
In terms of eMMC, demand for consumer products such as TVs, Chromebooks, and tablets continue to weaken, limiting demand for low- and medium-capacity eMMC products to a marginal level. Although the primary supply of low-capacity 2D NAND output has yet to be affected by raw material contamination, the overall deal-making atmosphere of the market remains transformed by the contamination incident. In addition, the plan of suppliers to gradually reduce 2D production capacity has not changed. Therefore, suppliers are eager to maintain profits by increasing the price of relatively low capacity eMMC products. eMMC contract pricing in 2Q22 is forecast to rise by 3-8%.
In terms of UFS, the Russian-Ukrainian war, high inflation, and other factors have weakened demand for the most important UFS applications such as smart phones. Likewise affected by the contamination of raw materials, the total output of 3D NAND has been significantly reduced. For UFS products with larger capacity and higher layer counts, the downgrade in supply far outstrips movement on the demand side. UFS pricing in the 2Q22 is forecast to increase approximately 3~8%. In terms of NAND Flash wafers, although demand for products such as flash drives and memory cards is weak, these are low priority products in the supply chain. Since raw material contamination has seriously affected the supply of NAND Flash wafers. 3D NAND Prices are forecast to move upwards by 5%~10% in 2Q22.
According to TrendForce forecasts, average overall DRAM pricing in 2Q22 will drop by approximately 0~5%, due to marginally higher buyer and seller inventories coupled with the demand for products such as PCs, laptops, and smartphones being influenced in the short-term by the Russian-Ukrainian war and high inflation weakening consumer purchasing power. At present, the only remaining source of demand is on the server-side, so overall DRAM stocks will remain oversupplied in 2Q22.
In terms of PC DRAM, PC OEMs are adopting a conservative stocking strategy for orders in 2Q22 due to the Russian-Ukrainian war, which may continue affecting orders during peak season in 2H22, and revising 2022 shipment targets downwards. Additionally, the overall supply of bits is still growing, so the PC DRAM price slump in 2Q22 will further expand to 3~8% and may continue to deteriorate.
In terms of server DRAM, the current server DRAM inventory level held by cloud service providers and enterprise clients is roughly the same as the amount held in 1Q22, and this relatively high inventory level is not enough to support a price reversal. The supply rate of server DRAM, of which there is still an oversupply, remains higher than 100% and this situation will continue into 2Q22. However, a price decline in 2Q22 is expected to converge at 0~5%, coinciding with the peak seasonal stocking surge.
In terms of Mobile DRAM, due to a number of factors such as high inflation, changes in the pandemic situation in various countries, and the Russian-Ukrainian war, it cannot be ruled out that the production volume of smartphones may continue to decline while smartphone brands will surely be more careful when planning production and material preparation. On the supply side, technology migration in manufacturing has offset the shift of DRAM production to the server DRAM field beginning in 2H21, maintaining the level of the mobile DRAM bit supply. For this reason, since the production targets of smartphone brands have fallen and the average memory capacity of a single device has not significantly improved, oversupply is forecast to continue in 2Q22, with pricing set to decline approximately 0~5%.
In terms of Graphics DRAM, the demand side has been affected by weak virtual currency prices in recent months which has gradually started to assuage demand for graphics cards. The supply side is facing supply constraints and a vendor shortage since Micron will withdraw from the GDDR6 8Gb supply in 2Q22. This will cause a temporary supply-demand imbalance for Graphics DRAM as the capacity allocation of Korean manufacturers fail to immediately fill the above-mentioned shortfall. Even if terminal demand slows down, considering GDDR6 8Gb remains mainstream in the current market, it will take time for manufacturers to convert specifications to 16Gb. Pricing is forecast to increase by 0~5% in 2Q22.
In terms of consumer DRAM, demand for DDR3 from specific products such as WiFi 6 and 5G base stations remains robust. The quantity of DRAM supplied to the market varies from manufacturer to manufacturer. Samsung and SK Hynix have gradually reduced production of DDR3, while Taiwanese firm Nanya Tech has recently shifted production to DDR3, owing to DDR3’s higher gross profit margin. Due to relatively stable demand and limited shipments from Korean manufacturers, the price of DDR3 will increase by 3~8% in 2Q22 with DDR4 maintaining a downward price trend.
A powerful magnitude 7.3 earthquake occurred off the coast of Fukushima, Japan on the evening of March 16th (CST). Most of northeastern Japan is a production center for global upstream semiconductor raw materials. According to TrendForce investigations, in the main quake zone, only Kioxia’s K1 Fab (located in Kitakami) will face the possibility of a further downgrade to 1Q22 production. Some of the remaining memory or semiconductor companies in the region are conducting machine inspections but the overall impact has been muted.
In terms of memory, the intensity of the earthquake at Kioxia’s K1 Fab reached magnitude 5. When the earthquake occurred, wafer input was partially damaged. At present, K1 Fab has been shut down for inspection. The 1Q22 production capacity of the K1 Fab had been downgraded following the recent contamination incident and accounts for approximately 8% of Kioxia’s 2022 production capacity. Operating under a cloud of possible aftershocks, Kioxia’s capacity utilization rate may be slow to recover in the next week, causing further downward revision of K1 Fab’s 1Q22 production. The remaining Kioxia factories are unaffected, as is Micron’s Hiroshima plant.
Looking at the market spot price, pricing has moved up since February due to the contamination of Kioxia’s raw materials. The Russian-Ukrainian war did not trigger significant upward or downward movements in spot price. After last night’s Fukushima earthquake, pricing remains stable. TrendForce asserts, overall spot demand remains weak and prices are not prone to drastic changes.
In terms of raw wafers, SUMCO’s Yonezawa Plant in Yamagata and Shin-Etsu’s Shirakawa Plant in Fukushima are both within the affected area, experiencing an earthquake intensity of magnitude 5. Due to the extremely high stability required in the crystal growth process, the industry has not yet announced the impact of the quake. TrendForce specifies, in addition to shutdown inspections, damage to machines and silicon wafer input is inevitable. However, in addition to redistributing production plans, buildings were reinforced after the 2011 Tohoku earthquake and tsunami in Japan, so overall damage may be minor.
In terms of foundries, there are two 12-inch wafer fabs and two 8-inch wafer fabs in Japan, including UMC Fab12M (12-inch), Tower Uozu (12-inch), Tonami (8-inch), Arai (8 inches), located in Mie, Toyama, and Niigata prefectures, respectively, and separately experiencing quake magnitudes from 1 to 3. At present, these fabs are operating normally and any impact of the quake on the plants are largely insignificant. However, IDM manufacturer Renesas’ Naka plant is within the magnitude 5 zone and they have also shut down and reduced production to confirm the impact of the quake.
Intel and AMD will be releasing new CPUs that support DDR5 DRAM solutions for PCs and servers this year. In response, the DRAM industry led by South Korean suppliers is developing solutions to complement the arrival of the new CPUs. In the midst of the gradual shift to DDR5, DRAM suppliers will also scale back the supply of DDR3 solutions, according to TrendForce’s latest investigations. With Korean suppliers accelerating their withdrawal from DDR3 production, Taiwanese suppliers yet to kick off mass production using newly installed capacities, and Chinese suppliers falling short of their expected yield rate, the global supply of DDR3 solutions will undergo an impending decline. With respect to the demand side, however, not only has the supply of networking chips been ramping up, but material shortage issues are also gradually easing. As such, buyers are now procuring DDR3 solutions ahead of time, resulting in a tight supply and demand situation in the DDR3 market. TrendForce therefore expects DDR3 DRAM prices to recover from a bearish first quarter and undergo a 0-5% QoQ increase in 2Q22.
On the supply side, Samsung and SK hynix have begun scaling back their DDR3 production while also planning to declare EOL (end of life) for their DDR3 offerings, such as 1/2Gb and 4Gb chips. It should be noted, however, that Micron’s DDR3 solutions will not reach EOL even by 2026, meaning the company will still offer DDR3 solutions long after its two Korean competitors have stopped doing so, according to TrendForce’s understanding. Also worth noting is that Micron is migrating its DDR3 production to a US-based fab that mainly manufactures specialty DRAM solutions. Nevertheless, since this fab’s production capacity will be divided between products for consumer and automotive applications, TrendForce believes that the aforementioned migration will tighten Micron’s supply of consumer DRAM solutions because the US fab will give priority to automotive DRAM solutions that offer a higher gross margin and are currently enjoying surging demand.
Although Taiwan-based DRAM suppliers that focus on promoting DDR3 solutions, namely, Nanya Tech and Winbond, are in the process of capacity expansion, their new production lines will not be operational until 2023-2024. Hence, the contribution from the newly added capacities is not expected to drive up DDR3 supply substantially this year. Chinese suppliers, including CXMT and GigaDevice, are continuing to collaborate in DDR3 development, though their capacity increases and yield rate improvements have both fallen short of market expectations. After being added to the Entity List, JHICC, yet another China-based DRAM supplier, is now dealing with severe restrictions with respect to procuring equipment, making it difficult for JHICC to raise its wafer input. Furthermore, the company has no spare resources that can be allocated to R&D and pilot runs. As a result, JHICC still primarily manufactures DDR4 4Gb chips at its initial 25nm node, with no DDR3 production at the moment.
With regards to demand, DDR3 consumer DRAM is primarily used in end-devices such as STBs and networking products (e.g., GPON, routers, and modems), which do not require high-performance SoCs. While the foundry industry suffered a severe shortage of wafer capacities allocated to logic ICs in 4Q21, production capacities for relatively low-margin chips were noticeably impacted in turn. Along with a preexisting component mismatch situation, most manufacturers found themselves unable to assemble end-devices. Moving into early 2022, however, the supply of certain materials, including those used in foundry operations, saw a gradual improvement. As various components needed for device manufacturing became available after Lunar New Year, certain buyers have once again kicked off their consumer DRAM procurement activities.
In addition, DRAM spot prices shifted from a prior decline to a strong upturn at the end of last year as the Chinese government ordered a month-long lockdown in Xi’an. The ensuing price hike, which has lasted for two months, subsequently led buyers to procure even more DRAM ahead of time in anticipation of further price hikes. Hence, although the demand for end-products has yet to make a full recovery, buyers are now slowly and steadily procuring consumer DRAM in order to avoid either higher upcoming prices or even an inability to secure consumer DRAM inventory.