Micron, Samsung, SK Hynix Set To Gain From Demand For 5G, Data Centers, Edge And Endpoint Devices, Analyst Says

inSpectrum released its memory contract pricing for the month of December. KeyBanc analyst John Vinh noted that the December pricing worsened on an M/M and Y/Y basis, though improving modestly on a Q/Q basis, as end demand in mobile and PC remains soft, despite inventory levels starting to come down vs. 3Q, particularly in mobile, except for cloud. 

The procurement from cloud customers remains cautious, as inventory levels remain high in conjunction with excess supplier inventory. 

Vinh expects DRAM pricing to decline low-teens percentage Q/Q in 1Q, as broad-based inventory digestion, led by cloud, will likely persist into 1H23, with limited visibility on end-demand recovery in consumer end-markets. At the same time, customers stay cautious about replenishment given the excess industry supply and low pricing environment, impacted by continued macro headwinds. 

With on-hand inventories at end customers across PC, servers, and smartphones to a lesser extent, still above normal levels, Vinh expects the inventory correction to continue to pressure pricing in 1H23. 

Vinh notes that NAND pricing declines worsened further across all timeframes, reflecting tougher supply-demand dynamics vs. DRAM.

Demand for mobile and PCs remains sluggish, most notably in China and Europe, as impacts from the prolonged COVID disruptions, Russia/Ukraine war, and inflationary pressure continue to impact consumer spending and the domestic economic outlook. At the same time, the holiday sell-through in the U.S. also sees signs of softness. 

For servers, U.S. CSPs procurement remains cautious given the pricing downturn and sufficient levels of memory inventory on hand, despite secular demand trends remaining largely intact. 

On the other hand, macro uncertainties continue to impact the demand from enterprise customers due to tightening budgets. 

Despite the majority of memory producers having chosen to moderate supply bit-growth, Samsung Electronics Co, Ltd's SSNLF decision to increase production will likely continue to pressure pricing as oversupply conditions persist through 2023, pressuring NAND margins more than DRAM. 

Therefore, Vinh expects 1Q NAND pricing to decline low-teens% Q/Q, as demand trends remain challenging and broad-based inventory adjustments continue and will likely persist into 1H23. 

Vinh views the December pricing results as broadly consistent with Micron Technology, Inc's MU earnings and negative for DRAM and NAND. 

Vinh maintained a positive long-term view that secular trends in 5G, data centers, and edge/endpoint devices will drive memory demand. 

Vinh views the DRAM market as healthier and more profitable than NAND over the long term, given industry consolidation, with three significant producers remaining (MU, Samsung, and SK Hynix), long-term solid demand drivers, disciplined capacity expansion, and extended equipment lead times. 

Price Action: MU shares traded higher by 0.83% at $50.40 on the last check Tuesday.

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