Since mid-2016, the memory chip industry has experienced a "chip boom" — in other words, a rise in memory prices and high growth rates. Mostly, this hasn't been good for consumers, but it has been good for companies in the industry and other stakeholders. Now, though, memory prices have started to drop suddenly — which may mean that the "chip boom" is finally slowing down.
A sudden dip in some memory prices followed by Samsung Electronics's "disappointing" profit estimates are worrying signs for investors who predicted the "chip boom" would last at least another year. The prices of high-end flash memory, which is widely used in smartphones, dropped by nearly 5 percent in Q4 2017, and Reuters reports that some analysts expect the industry's growth rate to fall by more than half this year to 30 percent. However, the report goes on to say that it's unlikely a sudden crash will happen this year. Instead, 2018 should be "relatively stable."
The $122 billion memory chip industry experienced an unprecedented boom last year, Reuters notes, as it expanded nearly 70 percent thanks to strong growth of smartphones and cloud services that require powerful data storage chips. It's due for a correction: Memory chips are likely to see a gradual price decline in 2018, according to the report, assuming demand remains high and the appetite for servers holds. However, it notes that a 30 percent growth rate is quite strong for a volatile industry and that the market is on course for its longest-ever boom after shrinking 6 percent in 2016.
2017's immense growth gave cash to chip makers to reinvest and boost output. Analysts at one firm project that the supply of NAND flash memory chips will grow 43 percent this year — up from last year's 34 percent — which will cause prices to drop by about 10 percent. The also predict that growth in output will be led by the likes of Western Digital, Toshiba, and Micron as they seek to catch up with market leader Samsung, which controls about 40 percent of the flash memory chip market.
Quoting analysts again, Reuters stated that smartphone vendors have been weathering last year's price surge by including more memory in their phones and charging more from them. (Case in point: The Galaxy S8 and the Galaxy Note 8, which came with 64GB internal storage and were both more expensive than their predecessors.)
The average DRAM memory of new phone models launched last quarter increased by 38 percent from Q2 2016, while NAND content measured by gigabyte increased by 84 percent, according to Reuters. Such demand will keep the industry's margin "healthy" this year, according to analysts quoted in the report. In addition, chip makers' investment in advanced tech is expected to help them cut production costs and stay profitable even as prices decline.
According to estimates mentioned in the report, Samsung's chip division's operating profit margin jumped to 47 percent last year from 26.5 percent in 2016, and it's expected to rise to 55.5 percent this year.
The report makes a distinction between the NAND flash market and the DRAM memory chip market. The DRAM market is about $20 billion bigger than the NAND industry, and prices are "expected" to gain nearly 9 percent because of a severe supply shortage, the report stated.
However, DRAM manufacturers are rushing to ramp up production, and they're likely to increase capital spending. Therefore, prices might decline by 18 percent next year, Reuters quoted a firm as stating.
Smartphone makers account for about one-third of global memory chip demand, and Reuters states that many have been pressing suppliers to lower prices. China's NDRC was said to be paying close attention in December to a surge in the price of mobile phone storage chips, and it's worth noting that more than 50 percent of Samsung's 2017 memory business revenue came from China, according to chip price tracker DRAMeXchange.
Our view: If prices fall from current levels and the supply situation improves, that's good news for consumers; it'll mean lower prices. We'll be watching developments in the space closely throughout 2018.
Source: Reuters
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