After a painful year, memory chip makers have reason to believe the industry’s decline is over. Samsung Electronics, the world’s largest memory chip maker, reported better-than-expected earnings forecasts, the latest sign of a rebound in its earnings. Peer rival Micron Technology said in December that the industry was on the worst.
The promotion of 5G technology will play an important role in promoting the memory chip industry. 5G will power growth in previously declining smartphone sales and invigorate companies’ investments in artificial intelligence, computing and data storage. These areas require a lot of memory.
Graphic: Smartphone shipments are on track to grow for the first time in three years.
For most of the past 15 months, the price of memory chips has fallen sharply. After a historic profit increase, the memory chip industry is overproducing, leaving behind a large number of unsold inventory products.
However, the last three months of 2019 have improved. Contract prices for NAND flash memory chips have risen for the first time in more than a year, according to TrendForce, a market research firm. Another major memory chip, DRAM, is expected to see its first contract price increase in a year in the first three months of 2020.
“There is less excess inventory than before. We don’t see the kind of surplus that happened three quarters ago,” said Tobey Gonnerman, an executive at Fusion Worldwide, an electronics distributor. He added that trading volumes of memory chips had also increased in the past two months.
Graphic: NAND memory capacity of smartphones has been increasing over the years.
Despite last year’s slide in chipmaker profits, investors have been betting on a turnaround in 2020, with Samsung Electronics up 44 per cent last year, Micron up 64 per cent andSK Hynix up 61 per cent. The three companies account for the largest share of the global memory chip market.
According to industry executives and analysts, growth in market demand is providing optimism about the industry’s return to growth.
Smartphone sales may also spur demand for memory chips. By 2020, 5G networks will be rolled out in several major markets. Tarun Pathak, deputy director of Marketpoint Research, said the spread of the 5G network would boost smartphone sales. Smartphone sales have fallen for the second year in a row as consumers continue to hold older phones for longer and are not keen to upgrade their devices.
Patak expects smartphone shipments to grow 4 percent this year. “The memory capacity of smartphones is increasing year by year, ” he said.
Meanwhile, big Internet companies such as Facebook and Amazon are recalibrating their memory chip inventories after months of inventory cuts, said Mark Newman, an analyst at Bernstein Research that tracks semiconductor markets.
The storage chip industry is also on a firmer footing after cutting production investment and reducing the risk of overcapacity. The memory chip maker cut capital spending to about $44 billion in 2019, down $6 billion from the previous year, Bernstein said. It was the first drop in spending in nearly six years.
“We’ve hit rock bottom,” Newman said.
Demand for memory chips has fluctuated dramatically over the past few decades. Previous downturns have bankrupted many chipmakers and led to industry consolidation.
The latest round of memory chip cycles is much longer than usual, known as the “supercycle”, which is the long-term rise cycle that ends in the second half of 2018. But some industry analysts say companies are moving faster this time around to cut production, and the industry as a whole could be recovering sooner than ever before.