U.S. investment bank Morgan Stanley predicted that the memory chip industry will reenter a "super cycle (boom phase)," drawing attention to whether Samsung Electronics, SK hynix and others will benefit. With explosive growth in demand for artificial intelligence (AI) chips diversifying memory corporations' sales portfolios beyond traditional servers, mobile and PCs, a supply shortage is expected to emerge in key applications, leading to continued price increases.
Morgan Stanley, in its recently published report "Memory super cycle – a boom for all industries with the rise of AI," said that "very strong AI growth will create a supply-demand imbalance in memory," forecasting a memory boom next year. Explaining why it offered this view, Morgan Stanley noted, "A new technology cycle led by AI growth began after the trough on 4th," and "the peak is moving to 2027." It said AI is changing the cyclical structure of the traditional memory industry.
◇ Diversified revenue sources with AI memory… "Conditions for a super cycle have been met"
Samsung Electronics, SK hynix and Micron rode an unprecedented memory super cycle in the 2010s and enjoyed a boom in earnings. After a prolonged game of chicken, memory corporations in Japan, Germany and Taiwan went bankrupt or disappeared, and with a structure in which a small number of surviving memory chip corporations monopolized the market taking hold, the smartphone revolution triggered explosive growth in memory demand.
Memory chip corporations that had focused on PCs in the past split their supply between mobile DRAM and PCs, and shortages emerged on both sides, leading to high profitability. Later, as the cloud boom took off, demand for server memory chips began to surge, and Samsung Electronics and SK hynix strengthened profitability by cutting PC and mobile production capacity and focusing on server memory. At the same time, both mobile and PC saw sharp price increases due to shortages.
SK hynix, which had been struggling with deteriorating profitability in the early 2010s, suddenly entered a boom phase because prices for PC DRAM, on which it relied for a significant portion of revenue, spiked. As Samsung Electronics focused on mobile DRAM instead of PC DRAM, a supply-demand imbalance emerged in the market. At the time, even smaller memory corporations such as Taiwan's Nanya, which produced DRAM using processes 2–3 years behind Samsung Electronics and SK hynix, posted operating margins of 40–50%.
In a memory supply structure where a few corporations flexibly adjust limited production capacity to demand, the formation of a large market for AI memory is clearly a positive. As high-bandwidth memory (HBM), which is several times more profitable than commodity DRAM, has begun to be classified as a new category, Samsung Electronics and SK hynix are allocating a larger share to HBM production lines, which is highly likely to cause shortages in existing PC, mobile and server DRAM.
This is also why Morgan Stanley and many market research firms predict DRAM price increases through the first half of next year. Morgan Stanley said, "We are in a phase where price increases for premium products driven by AI offset constraints on demand recovery," forecasting that the DRAM price uptrend will continue through the first half of next year.
NAND flash, which has suffered from deteriorating profitability in recent years, is also expected to face shortages, centered on enterprise solid-state drives (SSD) needed to build data centers. With growth in the inference market, AI industry benefits are expanding to data storage devices, but NAND flash makers' production capacity has been limited in recent years due to output cuts.
◇ Expansion of production capacity for Chinese memory… The boom phase could be checked
However, some say it is difficult to assert that a super cycle like the past will arrive. In the 2010s, Chinese memory lacked proper production capacity and was effectively insignificant, but now its capacity has grown enough to exert some influence in the global DRAM and NAND markets. In DRAM, CXMT, and in NAND, YMTC, are gradually increasing supply volumes to domestic corporations. Considering that Samsung Electronics and SK hynix sold DRAM in China—their largest market—at high premiums during the past super cycle, the presence of these two corporations is highly likely to be the biggest obstacle to a repeat of the super cycle.
According to the latest market data from Omdia obtained by ChosunBiz, China's CXMT increased its DRAM output from about 300,000 wafers in the first quarter of last year to 600,000 in the first quarter of this year, and it is expected to approach 800,000 next year. Given that Micron's quarterly DRAM wafer input is about 800,000–900,000, it also means the time is near to change the name from the existing DRAM Big Three to the "DRAM Big Four." In the NAND market, China's YMTC is also rapidly expanding capacity. YMTC's NAND output, which was about 230,000 wafers in the first quarter of last year, surpassed 400,000 this year and is expected to approach 500,000 next year. That is a scale similar to the NAND output of Micron and SK hynix.
A semiconductor industry official said, "While it is plausible that the AI memory tilt will deepen shortages in mobile and PCs, I do not think the likelihood of a repeat of the past super cycle is high," adding, "Chinese corporations that used to buy DRAM at a 'premium' to produce smartphones and build data centers now have the option of domestic DRAM, and the Chinese government is raising the self-sufficiency rate by giving subsidies to corporations that use domestic memory."