DRAMeXchange, a division of TrendForce, reports that the NAND Flash market continued to experience tight supply in the second quarter. As a result, contract prices of various lines of NAND Flash products rose by 3% to 10% from the first quarter despite the seasonal headwinds. Going forward, NAND Flash suppliers are expected to post excellent revenue results in the third quarter due to small increases in contract prices of mobile products (i.e. eMMC and UFS) and SSDs. On the whole, 2017 will be a bumper year for the industry.
“Facing the limitations in the shrinking of the manufacturing node for 2D-NAND Flash (or planar NAND Flash), suppliers have successively shifted to 3D-NAND Flash (or vertical NAND Flash) design and manufacturing technology,” said Alan Chen, senior research manager of DRAMeXchange. “However, the industry has also experienced a substantial loss in production capacity during this transitional period. This in turn resulted in tight supply and rising contract prices.”
Chen added: “We expect supply to be under strain for the rest of 2017. Relief will come later in 2018, when the manufacturing of 64- and 72-layer 3D-NAND Flash reaches maturity.”
Samsung’s second-quarter NAND Flash revenue rose by 11.6% from the prior quarter to reach US$4.7 billion. Besides the general undersupply, Samsung benefited from its strong shipments of high-capacity enterprise-grade SSDs and its good balance of the overall product mix.
SK Hynix saw second-quarter NAND Flash bit shipments fell by 6% from the first quarter as the demand from Chinese smartphone brands was lower than expected. However, the supplier’s profit margin remained high as the general undersupply and low inventory level led to an 8% sequential increase for the ASP of its NAND Flash products. On the whole, SK Hynix’s second-quarter revenue slipped by just 0.7% from the prior quarter to US$1.3 billion.
Toshiba’s investments to expand its 3D-NAND production capacity has been constrained by its cash flow problem. For now, meeting Apple’s demand is the top priority of the company’s NAND Flash business, then followed by developing smartphone storage and SSD products.
Toshiba second-quarter inched up by 0.5% sequentially to US$2.32 billion. The tight supply situation has given Toshiba leverage in price negotiation. While the supplier’s bit shipments stayed flat, its profit margin was healthy.
Western Digital’s revenue from retail sales of NAND Flash products has been the rise since the company completed the acquisition of SanDisk in 2016. Also, Western Digital in response to the relatively weaker demand in the PC-OEM market has shifted its focus to the mobile and retail storage markets. In these two markets, the company has been able to generate greater revenue with better offerings that differentiate from those of the competitors. Mobile and retail storage products already accounted for over 50% of Western Digital’s second-quarter NAND Flash revenue, which registered an 8.6% sequential gain and a massive 70% year-on-year increase.
The supplier furthermore posted remarkable growth for sales of enterprise-grade SSDs used in data centers and client-grade SSDs in the retail market. Revenue from the enterprise-grade SSDs advanced by 7% year on year in the second quarter, while revenue from client-grade SSDs advanced by 14%.
Likewise, Micron’s second-quarter NAND Flash revenue gained from the general undersupply and the rising demand for enterprise-grade SSDs. Furthermore, the supplier has brought down the average bit cost for its products by expanding its 3D-NAND Flash output. This in turn has raised the profit margin for the business. Micron also enjoyed a sequential increase in its NAND Flash bit shipments for the second quarter. Overall, the company’s NAND Flash revenue for the second quarter advanced by 20.8% compared with the first quarter to reach US$1.71 billion.
Thanks to the strong demand for enterprise-grade SSDs, Intel’s second-quarter NAND Flash revenue rose slightly by 0.9% from the prior quarter to US$870 million. The growth that Intel attained for this three-month period was more limited than the growths that the company posted in the prior quarters. One factor behind this was Intel’s recent adjustment of its product mix that led to a slight decline in the overall NAND Flash ASP. Nonetheless, Intel has maintained growth for its bit shipments and made 3D-NAND Flash the mainstay of product shipments.
Stock-up demand from smartphone clients will continue to put pressure on NAND Flash supply in the third quarter
The arrival of the third quarter also signals the start of the traditional busy season. Major electronic brands, especially those preparing to release their newest smartphones, are now stepping up their stock-up activities. At the same time, shipments of enterprise-grade SSDs are anticipated to expand rapidly due to the strong demand from data centers. Since NAND Flash prices continue to benefit from the persistent undersupply situation, suppliers will likely to keep producing impressive revenue and profit results this third quarter.
MU are heavily favored to continue to put up impressive results for the foreseeable future. With the ASP increasing for both DRAM and NAND Flash, MU will have a great qtr3. earnings. At the current P/E with the market trend in both DRAM/ Flash, MU is a great investment.
Disclosure: I am/we are long MU.