Memory market appearing to hit up-cycle

Chip makers are expected to cut investment into production facilities this year, as was the case in 2019 when there was a severe supply glut to cope with.

According to a recent report from market research firm Omdia, the global volume of investment into DRAM production facilities was forecast to fall 13.3% on-year to USD 17.8 billion. Investment into NAND Flash was set for USD 26.7 billion, which would reflect a 5.8% decline.

However, the report also said investment volume is likely to pick up in 2021, with investment into DRAM facilities jumping 20.8% to USD 21.5 billion, and that for NAND flash memory rising 6.2% to USD 28.3 billion.

In its first quarter earnings report, SK Hynix said that it remains unchanged on cutting CAPEX investment from last year. Samsung Electronics voiced similar opinions in January 2020 when it announced its performance for the final quarter of 2019, and so did Micron.

By minimizing investment, the chip makers are seeking to cut inventory and buoy prices, according to market experts. “Considering that investment falls during the down-cycle and picks up again in the up-cycle, Omdia’s forecasts seem to be pretty accurate,” said one industry source.

Smartphone demand has fallen in the aftermath of the coronavirus, but server memories used for cloud infrastructure has actually been on the rise due to the growing demand for non-physical services.

This trend has been fueling memory chip prices. According to market research firm DRAMeXchange, the fixed trading prices of DRAM 8Gb for PCs surged 11.9% on-month to USD 3.25 as of April. This marked the first time in 10 months since the monthly DRAM prices surpassed USD 3, and the growth clip was the biggest since April 2017 when it stood at 11.88%.

KB Securities said in a report issued on May 6 that as of the second quarter of this year, DRAM demand is expected to surpass supply by up to 20%. This trend is likely to continue and expand as the economy enters into the third quarter, it added.

The Elec is South Korea’s No.1 tech news platform.