The storage market has weathered a challenging phase in recent years, mainly attributed to an overabundance of supply from manufacturers and a slump in demandThis has created a largely unfavorable environment, particularly for DRAM products, which experienced a price decline lasting eight consecutive quarters since the end of 2021. With production capacities being curtailed due to weakened downstream demand, a significant imbalance between supply and demand became evidentHowever, as manufacturers move through their inventory surplus, suppliers are gradually regaining the upper hand in pricing negotiations.

Recently, key players in the memory space, including global giants like Samsung, SK Hynix, and Micron, alongside local firms such as Jiangbolong, Baiwei Storage, and Zhaoyi Innovation, have issued their latest earnings forecastsWhile the overall performance may still trend downward, there are emerging signs of a cautious recovery in the market.

Industry insiders shared that due to the international storage manufacturers scaling back production and curtailing capital expenditures, the positive effects of these measures are beginning to show

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Additionally, lower unit costs have boosted consumer demand, particularly in key markets such as smartphones and personal computers, suggesting a gradual warming in the major storage application sectorsConsequently, the storage industry appears to be breaking free from its down-cycle, with market demand slowly but surely regaining traction and mainstream storage prices steadily climbing.

As of early 2022, multiple factors, including a slowing demand, increased supply, and intensifying price competition, contributed to a plummet in chip pricing, leading the market into a downturn.

According to a report from Gartner, the global memory market shrank by a staggering 37% in 2023, making it the hardest-hit segment in the semiconductor landscapeThis downturn subjected both domestic and international memory industries to immense operational pressure, resulting in significant losses for leading enterprises like Samsung, SK Hynix, and Micron

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However, the long-lasting decline in storage chip prices witnessed a notable turnaround in the fourth quarter of 2023. Data from renowned market consultancy CFM indicated a 40% cumulative increase in the spot market index for NAND Flash prices since October of that year.

Significantly, both Samsung and Micron recently communicated plans to raise DRAM chip prices by 15% to 20% beginning in the first quarter of 2024. Some firms have already received this notice from Samsung, indicating a significant price adjustment on the horizonAnother of the "big three" in memory, SK Hynix, had previously announced price increases in October, ramping up their contracts for both DRAM and NAND Flash chips by 10% to 20%. Despite this, NAND Flash chip pricing has yet to reach a breakeven point for manufacturers, suggesting the potential for another round of steep price increases of up to 50% in the short term.

The surge in storage chip prices has translated into more positive financial reports for manufacturers

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Samsung Electronics announced fourth-quarter revenues of 67.78 trillion won for 2023, marking a 0.6% increase from the previous quarter but a 3.8% drop year-on-yearWithin this, their storage business achieved revenues of 15.71 trillion won, up 49% sequentially and 29% year-on-year.

SK Hynix also reported a successful turnaround in the fourth quarter of fiscal 2023, with revenues reaching 11.3055 trillion won and an operating profit of 0.3460 trillion won.

Micron announced narrowed losses in its quarterly report for the first quarter of its 2024 fiscal year ending November 30, showing revenues of $4.73 billion, reflecting a year-on-year increase of 15.6% and a sequential jump of 17.86%. Its operating loss of $955 million represented a 20.9% improvement compared to the same period last year.

On the domestic front, Baiwei Storage recently reported its forecast for the 2023 fiscal year, expecting revenues between 3.5 billion and 3.7 billion yuan, denoting an annual growth of 20% to 22%. In the fourth quarter, projected revenues reached between 1.4 billion and 1.6 billion yuan, showcasing over 80% growth year-on-year and over 50% growth quarter-on-quarter.

Based on a report from CITIC Securities, the industry is on the cusp of entering an upswing as 2024 approaches

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In the short term, mainstream storage prices are expected to continue rising, with niche storage prices remaining relatively stableThe projection suggests a sustained increase in mainstream storage prices throughout the year, which could subsequently drive the uptrend in niche storage pricingFrom a growth perspective, the rising penetration of AI cloud services is expected to invigorate storage upgrades, unleashing new innovation and demand engines.

Concerns linger, howeverThe general manager of Xuanrui Fund, Gai Hong, emphasized that the market's recovery observed at the end of last year was largely a result of manufacturers’ strategic adjustments rather than a genuine revival in demandThe significant production cuts enacted within the past year have had a direct positive impact on halting the slide in DRAM and NAND prices in the fourth quarter of 2023. While these reductions may temporarily relieve inventory burdens and raise prices, they do not fundamentally resolve the underlying issues

Genuine recovery hinges on an effective rise in downstream demand, restoring equilibrium in supply-demand dynamics so that memory producers can emerge from their predicament.

From another perspective, analyst Wang Zhiwei argues that these production reductions represent a desperate choice by manufacturers grappling with competitive pressuresIn their quest for financial recovery, these companies are left with no choice but to curtail production and tightly control their capacity releasesNevertheless, the crux of the situation still relies on the behavior of downstream demandAchieving a turnaround in supply-demand relationships is far from simple and requires collective efforts across the market to strike a workable balance amidst fierce competitionGiven the current market climate, manufacturers are under unprecedented stress, compelled to adjust their production capacity to cope with the fluctuations.

Amidst these market dynamics, manufacturers are also placing significant bets on developing High Bandwidth Memory (HBM). HBM represents a novel kind of memory chip designed for CPUs and GPUs, achieved through stacking multiple DDR chips and packaging them with the GPU for enhanced capacity and bandwidth

With the demands of an era defined by large-scale models for high computational power and storage, HBM has become a crucial factor for industry giants seeking reversals in performance during this downturn.

Recent statements from SK Hynix's Vice President Kim Ki-tae indicate that the company's HBM inventory has already been sold out this year, and preparations are underway for 2025. Micron Technology's CEO Sanjay Mehrotra also disclosed that Micron's HBM production for 2024 has been entirely booked out.

Publicly available information outlines that HBM is an emerging standard for DRAM solutions introduced by industry leaders such as Samsung, AMD, and SK HynixNotably, HBM technology achieves breakthrough bandwidths exceeding 256 GBps and decreased power consumption, employing a stacked DRAM architecture utilizing TSV and chip stacking technologiesThe initial HBM memory chip was manufactured by SK Hynix in 2013, followed by the launch of the first HBM-utilizing product, AMD's Fiji GPU, in 2015.

According to analyst Wang Zhiwei, the rate of requirement for GPU parallel computing has been steadily increasing, necessitating not only computational power but also a synchronized balance among storage capacity and throughput

Typically, discrepancies arise between the read speeds of memory and the processing speeds of computations; HBM has emerged as a vital technological pathway to enhance transmission rates and storage capacity.

With the demand for GPU performance in parallel computing continuing to rise, it is critical for the entire computational process to harmonize power capabilities, storage capacities, and throughput effectivelyHBM is at the heart of this transition, emerging as a pivotal technology driving further developments in the sector.

Research firm Yole Group reported that the average selling price of HBM chips this year is five times that of traditional DRAM memory chipsThe group predicts that due to challenges with production expansion and surging demand, the compound annual growth rate for HBM supply will reach 45% from 2023 to 2028. Given these expansion hurdles, HBM prices are expected to remain elevated for the foreseeable future

Market research firm Omnia predicts that HBM is projected to account for over 18% of the DRAM market this year, a significant increase from last year’s 9%.

Driven by market demand, major suppliers such as SK Hynix, Samsung, and Micron are ramping up production capacities in the HBM sectorRecently, Samsung announced plans to elevate its HBM production to a peak output of 150,000 to 170,000 units monthly by the end of 2024. Previously, Samsung invested 10.5 billion won to acquire a display factory and equipment located in Tianan, South Korea, with the aim of expanding HBM capabilities further.

While consumer demand may remain tepid, the rapid expansion of the generative AI market has sparked a surge in demand for server memoryThis uptick in requirements for high-performance products like HBM3 and DDR5 is poised to offer fresh growth opportunities for memory manufacturers.