Korea IT H/W: Server DRAM Demand Recovery A Certainty In Q4 2019

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Includes: AMD, INTC, NVDA, SSNLF
by: Hyundai Motor Investment & Securities
Summary

Aspeed’s August sales up 6.3% MoM and 14% YoY to a monthly record.

NVDA’s GPU sales from data centers and AMD’s enterprise CPU sales on the road to recovery as well.

Server DIMM price declines hit the brakes in August, sliding only 2% MoM for 32GB and 4.2% MoM for 64GB.

Aspeed’s Aug. sales up a record 6.3% MoM, signaling 4Q demand recovery

Aspeed, representing 80% of global hyperscale server sales and leading memory and CPU demand by three months, unveiled its August earnings results: sales rose 6.3% MoM and 14% YoY to NTD230mn, breaking a monthly record for a second consecutive month. Its YTD sales in August edged up 1.9% YoY, which seems slow compared with the 2019 YoY growth guidance of 10%, but it is an indication that sales for the rest of 2019 will be stronger than expected. Meanwhile, server demand from telcos is increasing amid the rise of 5G, and we expect demand from public cloud companies and enterprises to pick up in earnest from 4Q19. NVIDIA’s (NVDA) GPU sales generated from data centers are rebounding QoQ from the 1Q19 bottom. Server DIMM prices dipped 2% for 32GB and 4.2% for 64GB, but the pace of the fall slowed significantly in August vs. July. As such, we expect server DRAM prices to decline at a milder-than-expected pace of 14% QoQ (vs. our previous estimate of -15% QoQ) in 3Q19. As for AMD (AMD), 2Q19 saw a 34% QoQ increase in enterprise CPU sales and a 13% QoQ increase in PC CPU/GPU sales. With AMD’s Ryzen CPU gaining market share led by low-end products such as assembled PCs, Intel (INTC) is also moving to lower its 14nm-based CPU prices for PCs, and notebooks with the 10nm-based Ice Lake CPU will probably become available in 4Q19. AMD’s aggressive marketing and Intel’s launch of the new 10nm notebook CPU have worked to stimulate once-depressed PC demand, having a positive impact on PC DRAM prices. Indeed, PC DRAM contract prices stayed flat MoM in August after months of decline. Furthermore, mobile DRAM demand is expected to gain steam with the launch of the Galaxy Note 10 series by Samsung Electronics (OTC:SSNLF) and the Mate 30 Series by Huawei. In all, we expect the mobile DRAM price decline in 3Q19 to be contained at the 12% QoQ level.

AMD

Leading indicators favorable for two straight months, maintain Overweight

The leading indicators of server demand are turning around in earnest, alongside demand for PCs and mobile devices. Telcos’ demand for hyperscale servers is recovering, and North American public cloud companies’ demand is also gradually increasing; we expect private and hybrid cloud computing service providers to further fuel demand going forward. As we witness the recovery of demand for DRAM, Korean chipmakers’ major cash cow, we maintain Overweight on the Korean memory semiconductor sector.

NVIDIA Aspeed

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Hyundai Motor Company is a passive shareholder in our bank.