In recent years, the global supply and demand balance of chips has attracted much market attention. Since 2022, the chip issue has shifted from shortage to surplus, and the cycle "changes seasons" faster than many people think. Since the end of 2020, the price increase cycle of memory chips has continued for more than 18 months, but there has been a weak trend in July. Market sources pointed out that global memory chip oligarchs Samsung, SK Hynix, Micron, etc. may launch the "first shot" of price cuts, with a drop of about 10% compared with the second quarter. Memory chips are one of the most cyclical chip commodities, and "hot and cold switching" is indicative. Where does this round of price cuts point? What factors contribute to the imbalance between supply and demand? What new factors are worth noting compared to previous semiconductor cycles? Market analysts pointed out to Southern Finance All Media reporters that it is necessary to pay attention to the impact of accelerated penetration of DDR5 on the price of stock chips, and many other factors will cause memory chips to usher in a weak trend in the third quarter. However, looking forward to the final direction of memory chips in 2022, there is still no shortage of optimists in the market. Market analysis said that there are new fields other than consumer electronics that are forming important demand markets, which are expected to support the price of memory chips in the future. Among them, cloud services will take the lead in "running volume", and the automotive market will become one of the most important drivers of memory technology upgrades. 1 DRAM ushered in the first wave of price cuts Since July, a number of market institutions that have long tracked the price of memory chips have pointed out that DRAM will usher in price cuts. "In the third quarter, DRAM prices may drop by nearly 10% quarter-on-quarter," TrendForce said in a July 4 report. This reflects that the rising market, which has been maintained for 18 months, is finally coming to an "inflection point". DRAM refers to dynamic random access memory, which is the most mainstream type of memory chip today, and this kind of memory chip will be extremely popular in 2021. In 2021, the annual sales of the global DRAM market will increase significantly. This reflects the "increase in volume and price" that year. The average unit sales price of DRAM increased from $3.51 in 2020 to $4.3, an increase of 22.5%, and shipments also increased significantly year-on-year. Long-term sharp price hikes have unnerved the market, and since late 2021, there have been constant predictions of a weakening DRAM market. However, in the first half of 2022, the market has maintained a stable trend. "In the first half of this year, the overall consumer demand for electronic products has weakened rapidly, but the original DRAM manufacturers have had strong bargaining, and there is no sign of lowering prices." Under the strong seller's price, the performance of DRAM "big manufacturers" has been maintained. Micron, one of the world's three largest memory chip manufacturers, has delivered satisfactory answers in two quarterly reporting periods in the first half of this year. The company's total quarterly revenue grew 25% year over year in the December 2021-February quarter, and 16.4% year over year in the following quarter. The company emphasized that DRAM prices remained stable during the period. In any case, after entering July, it is difficult to maintain a balance between DRAM supply and demand. "The demand outlook in the second half of the year is unclear, and some DRAM suppliers have begun to have a clear intention to cut prices." Wu Yating told reporters that she expected that in the server field with relatively stable demand, DRAM "big manufacturers" will seek to "destock". Micron's forecast for the second half of the year was also markedly "pessimistic," noting that the company's total revenue for the June-August period was about $7.2 billion, about 21% lower than market expectations. Since DRAM accounts for more than 70% of Micron's total revenue, Micron's "pessimistic" forecast implies a DRAM price cut. The DRAM market is an oligopolistic market, with Micron and South Korea's Samsung and South Korea's SK Hynix "third the world", accounting for about 94% of the market share. In Taiwan, China, Nanya Branch and Winbond Electronics under the Formosa Plastics Group are also important DRAM manufacturers supplying the world. A price cut in an oligopolistic market is usually a "consensus" price cut, and it is very easy to lead other small market participants to follow the price cut. "If there is a situation where the original manufacturers compete to reduce prices in the future, the price reduction of DRAM in the third quarter may exceed 10% month-on-month." Wu Yating said. 2 Reasons for the price reduction of memory chips DRAM chip price cuts are usually caused by shrinking demand for electronic products, but the driving factor for this round of price cuts may be more than that. Market participants analyzed to Southern Finance All Media reporters that the buyer's sufficient inventory, shrinking consumption of electronic products, and increased penetration of advanced process chips have all contributed to this round of DRAM supply and demand imbalance. Memory chips are memories embedded in electronic products to temporarily store data, and are widely used in data centers, PCs, and mobile phones. Wu Yating told reporters that both data centers and PC applications will have sufficient DRAM inventories in mid-2022. The average inventory of major PC OEMs is more than two months, while the data center inventory is about 7 to 8 weeks. This reflects that if DRAM sellers cannot offer attractive price reduction space, customers have no urgent desire to purchase goods at present. Second, electronics consumption is cooling. On June 30, data showed that global PC shipments will drop by 9.5% in 2022. This reflects that global PC sales have reached a cooling inflection point. Looking at past market data, as of the first quarter of this year, global PC sales have experienced seven consecutive quarters of explosive sales, with more than 80 million units shipped each quarter. However, there is a view that in 2022, the willingness to consume PCs will be reduced under various difficulties such as geopolitical turmoil, high inflation, currency fluctuations and supply chains. "In fact, the home office and distance learning since 2020 have released PC purchase willingness in advance." A person close to the world's three major DRAM manufacturers also analyzed the current market conditions to Southern Finance All Media reporters. In addition, some data also point out that shipments of tablets and mobile phones will decline to varying degrees in 2022. PCs, tablets and mobile phones account for more than half of the DRAM demand. It can be seen that the shrinking of related consumption will simultaneously hit the DRAM demand. Another factor affecting the DRAM market is also forcing memory chip manufacturers to cut prices, which is the crisis of "lagging behind" the old process. Wu Yating told reporters that in the third quarter, the 1z and 1-alpha advanced processes continued to increase market penetration. This reflects the need for faster destocking of memory from older processes. The process is also the process level. Advanced processes will improve the performance of DRAM in terms of density, power consumption and performance, prompting consumers to make upgrade choices. The 1z process and 1-alpha process will be put into large-scale production in 2020 and 2021, respectively, and the market penetration rate is still increasing. If the inventory of the old process cannot be digested in time before 1z and 1-alpha products enter the market in large quantities, it may face a more "cliff-like" price drop. 3 Driving force for the future The historical price fluctuations of DRAM are staggering. In order to avoid dependence on a single electronic end product, DRAM manufacturers also need to find future demand drivers. Market analysis believes that cloud and automotive have huge DRAM demand potential. The consumption of PCs and mobile phones has deeply drawn the "cool and hot" trend of the DRAM market in history. In 2017, PCs and mobile phones entered the “bull market” of consumption. The price of the fourth-generation double data rate (DDR4), which was launched that year, rose, and the spot price of 4Gb DDR4 DRAM rose from about US$6 to US$9 within half a year. Since the fourth quarter of 2018, PCs and mobile phones have entered a "bear market" of consumption, and memory prices have fallen sharply. The prices of the above-mentioned DRAM products even fell below $2 in the spot market in June 2020. Nonetheless, cloud and automotive are ramping up DRAM consumption, which has the potential to provide more stable demand for the DRAM market. Wu Yating told reporters that the servers currently required by the cloud business account for about 35% of the overall DRAM demand, and this share is still increasing year by year. Not only that, but it is also conducive to DRAM price stability, because server DRAM has higher requirements for performance, power consumption and reliability. "In the long run, the unit price (ASP/bit) of server DRAM will be relatively high." Wu Yating said. When it comes to automotive DRAM, Wu Yating pointed out that the current demand for automotive DRAM is more variable and diversified. DRAM for computing is purchased from the automotive market. Market penetration of autonomous driving software and assisted driving software is an important source of demand for automotive DRAM. A person close to the world's three largest DRAM manufacturers told reporters that he believes that automobiles are "the strongest growth market for DRAM in the next decade". "The data processing to drive the vehicle needs to be timely and fast, and the capacity is also very large." He said, "For example, the code data operation per second of a smart car with an assisted driving system may be comparable to data center computing." Not only that, but automotive chips will also prompt DRAM to continue to seek technological advancements. The above-mentioned industry sources said: "Automotive chips require high safety and durability, and with a service cycle of more than ten years, the highest technical requirements for DRAM will also be put forward." At present, DRAM manufacturers including Micron have put The latest LPDDR5 DRAM hits the automotive market. Wu Yating pointed out that at present, automobiles only account for 2% to 3% of the DRAM demand. She also believes that the market penetration of high-level autonomous driving/assisted driving software tools will be the main driving force for automotive DRAM demand. However, Wu Yating believes that this will take several years, which means that the DRAM market will first seek order breakthroughs in emerging fields such as cloud servers.