Wednesday, December 06, 2017
There are concerns that the semiconductor market will peak soon and the super boom in memory chips will turn downward afterwards even if the market demand next year maintains at the same level this year as the supply of memory chip manufacturers, including Samsung Electronics, exceeds the demand.
However, most of market experts don’t think that the market will plunge amid high demand forecasts. Under the current situation when the IT industry is growing explosively, the supply is the factor that determines the semiconductor cycle unlike the past when the semiconductor market conditions depended solely on demand volatility caused by business fluctuations.
According to semiconductor industry sources on December 3, market research firm IHS Markit recently released a report that the global NAND flash market demand will reach 244.1 billion gigabytes next year, up 39.6 percent from this year.
By company, Samsung Electronics is expected to increase its supply more than 39 percent to 87.6 billion gigabytes next year. The combined supply of Toshiba and Western Digital, the world's second and third largest producers of NAND memory chips, will also expand 37.5 percent to 88.3 billion gigabytes. SK Hynix is also expected to see its NAND memory chip supply next year grow 39.3 percent to 27.9 billion gigabytes.
When the forecast by IHS Markit becomes a reality, the market boom is highly likely to be near the close next year. IHS Markit said the NAND memory chip demand will stand at 242.4 billion gigabytes next year, up 36.7 percent from this year. The figure surpasses 1.7 billion gigabytes of the supply and it is just 0.7 percent of supply excess compared to the total demand.
Some market watchers point out that the excessive oversupply forecast is a two-dimensional analysis that didn’t fully consider the recent gap in technology between producers and recent market conditions. They say the technology gap is highly likely limit the actual supply increases.
In fact, the production growth rates have dropped by half in the past six to seven years with the investment on a similar scale as the semiconductor manufacture process has been advanced. The increase in DRAM chip productions decreased from 47.9 percent in 2011 to 19.4 percent this year. The global investments over the period have maintained at the similar level of 10 trillion won (US$9.19 billion).
With Samsung Electronics and SK Hynix having been pushing ahead with the conversion to a three-dimensional NAND chip process, companies are expected to have mixed results in business performance. In short, the technology gap can lead to the performance gap regardless of market conditions as the market demand for high-specification and high-performance memory chips grows.
Industry sources also say that NAND memory chip producers are likely to control the supply. Samsung Electronics has the facilities that can control the NAND flash and DRAM productions through its 12 and 16 lines at the Hwaseong plant. An official from the industry said, “Since the recent DRAM market is bullish, Samsung Electronics has a relatively great freedom like reducing the production of NAND flash chips and increasing that of DRAM chips.”
The report from global investment bank Citigroup Global Market Securities raised the likelihood of Samsung Electronics converting its 17 lines on the second floor at the Pyeongtaek plant from NAND flash to DRAM process. Based on this, Citi Securities forecasted that the supply in NAND flash market next year will lack 0.7 percent compared to the supply. In particular, the short supply in the third and fourth quarter next year will expand to 2 percent and 3.2 percent, respectively, compared to the demand, reaching the highest since 4.3 percent in the fourth quarter last year.
This is why there have been some calling for paying attention to the fact that the demand next year will go up by 40 percent from this year. Considering the fact that the demand of NAND memory chips this year, which has led to the biggest boom, is highly likely to increase 38.1 percent on-year by the end of this year, the increase in demand next year will be maintained at the similar level of this year.
According to IHS Markit, the demand for enterprise infrastructure, including cloud platform services, is a factor that will lead the demand for NAND flash chips next year. As the data processing capacity of IT devices, such as personal computers and smartphones, have grown and its linked server and enterprise infrastructure data have increased as well, creating a sort of virtuous circle, the demand doesn’t fall easily.
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