NAND Prices Skyrocket! Samsung Raises Chip Quotes
Samsung Electronics, a prominent South Korean memory manufacturer, has unveiled its strategy to invigorate the NAND Flash chip market. In the fourth quarter, the company intends to implement a significant price adjustment, resulting in a 10% or more increase in NAND chip prices. The price surge is slated to commence as early as October, with experts in the industry speculating a potential 10% to 15% rise in contract prices for both DRAM and NAND during the same quarter.
It has come to light that Samsung Electronics plans to initiate the price adjustment for NAND chip contracts for all newly signed orders commencing from October. This strategic maneuver follows the company's earlier announcement regarding the reduction of NAND chip production as part of its efforts to bolster NAND chip prices.
Starting from the latter half of 2022, global economic challenges and rising inflation have continuously impacted the demand for semiconductor chips, leading to an unprecedented slump in the chip industry. In the first quarter of the current year, Samsung reported a staggering 61.2% year-on-year decrease in DRAM chip sales, plummeting to $4.01 billion. Concurrently, NAND chip sales also witnessed a substantial decline, reaching $2.99 billion, which is merely half of the figures for the same period the previous year.
As the prices of memory chips continued to experience a downward trend, SK Hynix initiated a wave of production cuts towards the end of the previous year. Following suit, Samsung Electronics announced similar production reductions in January, subsequently expanding them in April. While these measures succeeded in revitalizing DRAM chip prices, the prospects for NAND chip prices have yet to show significant improvement.
Due to the comparatively lower profit margins associated with NAND chips in contrast to DRAM chips, Samsung Electronics has proactively pursued a path towards price normalization. With an ambitious target to achieve a balanced financial position in its NAND chip business by the second quarter of the upcoming year, the decision to implement a price hike has been closely aligned with ongoing production cuts.
Han Dong-hee, an analyst at SK Securities, articulated, "Samsung Electronics' second wave of production cuts and profit-focused policies are poised to stimulate an upswing in memory chip prices."
In parallel, Samsung Electronics, SK Hynix, and Micron remain committed to supply reduction strategies aimed at bolstering contract and spot prices for both DRAM and NAND. Industry insiders in Taiwan have observed notable increases in DDR5 spot prices due to limited inventory, while DDR4 inventory levels remain relatively high. The concerted efforts of the three major manufacturers to curtail production are primarily targeted at DDR4 while expanding DDR5 production. Forecasts indicate that by the end of 2023, DDR5 sales could account for 30% to 40% of the market, marking a significant transition from DDR4.
Nevertheless, it is worth noting that analysts caution regarding the utilization rate of mature manufacturing processes at logic foundries, which has not shown significant signs of recovery. Subsequent developments will hinge on the sustainability of demand.
Presently, market consensus indicates that module manufacturers are poised to increase prices for their customers in the fourth quarter, with contract prices expected to follow the upward trajectory of spot prices. Module manufacturers are anticipated to reap the initial benefits of these changes, while memory chip manufacturers and foundries are expected to experience a delayed recovery due to their continued support of prices through production cuts.
