A true cyclical market, the NAND flash business goes through periods of booms and periods of busts. Following a very profitable boom year in 2018, it looks like the market is in a down swing, as an oversupply is starting to impact the bottom lines of memory makers. To stem any potential for significant losses or an outright market crash, three major manufacturers of NAND memory — Intel, Micron, and SK Hynix — have announced that they will be taking measures to address the oversupply, such as reducing flash production, cutting down wafer starts, and/or slowing down ramp ups of new fabs. Furthermore it is highly likely thr another major manufacturer, Samsung, will follow suit.

The rapid transition to high-capacity 64-layer and 96-layer 3D NAND memory devices has enabled NAND flash manufacturers to increase their NAND supply (as measured in bits) and ultimately saturate the market with loads of flash memory. Meanwhile, demand for servers in the recent months has been weaker than expected, smartphone replacement cycles are getting longer, and other drivers of NAND demand have also disappointed. As a result, NAND supply has well exceeded demand, causing prices to fall by as much as 20% across multiple categories in Q1 2019, according to TrendForce. To ensure their short-term and long-term profitability, at various points in the last couple of months the three manufacturers have all announced that they are taking actions to minimize their exposure during this latest bust.

Micron said back in March that it was carefully managing its NAND bit supply growth (to tackle oversupply at least partially) and started to decrease its total NAND wafer starts by roughly 5% by cutting its legacy nodes. The company did not indicate plans to shrink its NAND bit supply, but reducing production of memory using older process technologies will likely lower its costs.

Meanwhile SK Hynix this week said that it had stopped production of 36-layer as well as 48-layer 3D NAND memory, which these days has a rather high per-bit cost relative to newer technologies. In the coming months the company plans to increase production of 72-layer 3D NAND and in the second half of the year it intends to release 96-layer 3D NAND solutions for the SSD and mobile markets. Furthermore, SK Hynix will slow down the ramp up of its M15 fab in Cheongju, South Korea. The company expects its NAND wafer output to decrease more than 10% compared to 2018. Just like Micron, SK Hynix does not seem to have plans to lower its NAND bit production, so it will still more memory than it did last year.

Intel, which has traditionally concentrated on the enterprise part of the SSD market, has also announced this week it will reduce its NAND output in 2019. Intel did not elaborate whether it intended to reduce the number of wafer starts, or do something more radical. But regardless, the company continues to expect challenges with prices of NAND memory going forward, and is acting accordingly.

Finally, while Samsung yet has to announce its Q1 2019 results, it has already warned investors that its profits for the quarter would be down 60% compared to Q1 2018. Analysts have been attributing this to multiple factors, including demand for flagship smartphones, lower prices of DRAM and NAND memory, and other weak markets. Given that the other major memory manufacturers are all taking steps to address the current oversupply, It is more than likely that Samsung will also adjust its NAND business this year; though how they'll do so remains to be seen.

Related Reading:

Sources: Intel, SK Hynix, TrendForce, Micron/SeekingAlpha, Samsung

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  • khanikun - Monday, April 29, 2019 - link

    Lengthening is definitely more appropriate imo. Increasing sounds like people are replacing their smartphones more often. 1 replacement cycle a year, 2 replacement cycles a year, 3 replacement cycles a year, etc. That's increasing.

    1 replacement cycle a year, 1 replacement cycle every 1 1/2 years, 1 replacement cycle every 2 years, etc. That'd be lengthening.

    Course increasing can be read as both.
    Reply
  • wrkingclass_hero - Friday, April 26, 2019 - link

    This is such bullshit that the NAND suppliers can openly collude to manipulate supply and demand, if our legal system wasn't broken and corrupt they would suffer crippling punishments for price fixing and collusion. Reply
  • Solandri - Friday, April 26, 2019 - link

    During the lows of the bust cycles, these companies sell NAND below their production costs. (Read up about sunk costs if you don't understand why a business would do that.) You seriously expect them to continue selling things for less than it costs to make them without reducing production? Companies which do that don't stay in business for long.

    From having run a business, what I've learned is that price drops are initiated by the store - if inventory is piling up, you have to drop your prices to clear it out. Price increases are initiated by the customers - if you can't keep stuff in stock and people still want it, they will buy it from someone else who still has stock because they priced it higher than you did.
    Reply
  • sonny73n - Saturday, April 27, 2019 - link

    I was planning to upgrade my system RAM from 8GB until I read your bullshit analogy. NO companies sell products below their production costs, unless they’re going out of business. There are many things in stores that are oversupplied such as food or clothings or tools but you don’t see them cutting down productions to increase demands, do you? You have the right to cut down your own production but shaking hands with other companies so you all can manipulate the market is just down right crooked.

    Because our politicians have minds like yours, our legal system is broken and corrupt. What I can do is restrain myself from buying what I don’t really need and advice everyone around me to do the same. Mind telling me what business you’re running?
    Reply
  • Kristian Vättö - Saturday, April 27, 2019 - link

    Look up Intel's earnings from this week. Their memory division made a $300M loss with $900M revenue. Reply
  • FunBunny2 - Sunday, April 28, 2019 - link

    any accountant who can't shift costs intra-compnay/inter-division in order to support the CxO story won't stay employed. Reply
  • Tams80 - Saturday, April 27, 2019 - link

    Pretty much any business does control supply according to demand. They wouldn't be in business otherwise.
    Laws are there to prevent this to an excessive degree, not prevent it entirely. When businesses failt to control their supply well, you end up with governments having to step in (see the food mountains and drink lakes that happened in the EU).
    Reply
  • Solandri - Sunday, April 28, 2019 - link

    Since you obviously didn't look up "sunk costs" here's an anecdote to illustrate what happens when you refuse to sell below cost. I had a manager who thought like you did. He ordered a batch of 80286 laptops for resale. 6 months later 80386 laptops became available. I and many others advised him to cut the price on the 80286 laptops. He insisted we shouldn't drop the selling price below what we paid. We tried to explain sunk costs to him, but he was adamant. 2 years later, 80486 laptops were available at a lower price than his 80286 laptops. Instead of losing a couple hundred thousand dollars by selling the 80286 laptops below cost, we ended up losing a million dollars because of all those unsold laptops were now obsolete and unsellable. Reply
  • khanikun - Monday, April 29, 2019 - link

    Actually a lot of companies sell products below production costs. As long as they can make it up in another fashion. Consoles is one such product that is usually sold at less than production cost, as they can make their money back through their online stores, licensing fees, online services, etc.

    Google pretty much gives away all their products. How many millions or billions of dollars do you think they spend to make their software?

    It's actually fairly common in the tech world, as costs are made back in another fashion. It's harder to make back money in another fashion, when you might only make that one product. You're also comparing the tech world to food, clothing, or tools. Where one has much higher R&D costs and factory costs. I can't think of any other industry that spends $20 billion to make a single factory.
    Reply
  • brakdoo - Friday, April 26, 2019 - link

    WTF? Do your homework man:

    Micron announced reduced bit output both DRAM and NAND FY19 Q1 earnings call in december: "Taking actions to lower our NAND output and now expect our
    NAND bit shipment growth to be ~35%"
    Those Q2 actions are just additional...

    Samsung reduced expectations for 19 back in Q4 18: "And for NAND flash, the annual demand growth is expected to be mid-30s. And again, our bit growth will be in line with that of the market."
    Reply

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