Samsung Electronics and SK hynix are said to be reducing the share of mobile NAND flash production and accelerating a shift to server NAND lines, where artificial intelligence (AI) demand is growing. As China's YMTC mounts a low-price offensive in the NAND market, eroding profitability for mobile NAND, they are transitioning processes to NAND used in enterprise solid-state drives (SSD) for AI data centers.
According to a recent report by market research firm TrendForce on the 2nd, Samsung Electronics and SK hynix are replacing production facilities for universal flash storage (UFS) and eMMC (Embedded Multi Media Card)—NAND flash storage used in smartphones—with facilities for data center NAND. Due to facility conversions conducted in the first half of the year, production shortfalls have emerged, and a temporary supply shortage is expected for both mobile and server NAND in the second half of the year.
Samsung Electronics and SK hynix have maintained production cuts ever since China's YMTC began in earnest to ramp up output. But as YMTC's market penetration in the smartphone NAND market, a major source of NAND sales, has proceeded faster and more broadly than expected, they are suffering from price competition.
Accordingly, the two corporations appear to have concluded that securing profitability is difficult through production cuts alone and decided to reduce the share of mobile NAND and focus on AI data centers, which are more profitable.
In particular, Samsung Electronics and SK hynix are focusing on demand for high-capacity storage devices based on quad-level cell (QLC) NAND, which is gaining traction in the enterprise SSD market. QLC refers to a flash memory method that stores 4 bits of data in a single memory cell. Because it can store more data per cell than SLC (1 bit), MLC (2 bits), and TLC (3 bits), it is mainly used for high-capacity SSDs and server storage. However, as each cell contains more information, maintaining durability is crucial, making it a high-difficulty technology. If implemented stably, it is regarded as a highly profitable sales channel.
TrendForce said, "Global cloud service providers (CSP) such as Google and Meta are increasing orders for enterprise SSDs, pushing up the average price of NAND," and forecast that the global average contract price of NAND in the fourth quarter will rise 5% to 10% from the previous quarter. In the third quarter, it rose 3% to 8% from the previous quarter, marking a larger increase.
However, the outlook for data center NAND is not unambiguously positive in the mid to long term. As Japan's Kioxia moves to catch up with Samsung Electronics and SK hynix by targeting AI data center SSD demand with large-scale investments, there is room for intensifying price competition.
Recently, Kioxia began full-fledged operations of the second production facility (fab) at its Kitakami flash memory plant in Iwate Prefecture, and plans to mass-produce and supply cutting-edge memory chips to the market from the first half of next year through the new facility. Along with the Kitakami plant, it is also making large-scale investments at its main production base in Yokkaichi, Mie Prefecture, with a policy to double production capacity.