DRAM is severely oversupplied and is not expected to stop until the third quarter of 2023

News on September 26, according to the latest research report of overseas investment banks, it is expected that the supply and demand ratio of the DRAM market in 2022~2023 will reach 107% and 111% of the serious oversupply situation, which makes the DRAM price from the third quarter of 2022 to the third quarter of 2023 will fall by 15%, 15%, 10%, 10% quarter by quarter, and it is not expected to stop falling until the third quarter of 2023.

According to the report, the growth rate of DRAM bit (capacity) demand in 2023 has been revised down from 18% to 11%, mainly reflecting the weakening of terminal retail demand, and the DRAM procurement of downstream players tends to be negative. In the module and server companies, DRAM inventory was accumulated from 8 weeks and 8 weeks at the end of June to 10 weeks and 12 weeks at the end of September, respectively. PC OEMs and mobile phone manufacturers maintained high DRAM inventories for 12 weeks and 8 weeks. In addition, the mass production of Intel's Sapphire Rapids CPU has been postponed to the first half of 2023, and the server industry will also postpone the replenishment time point to the second to third quarter of 2023.

In addition, the DRAM bit supply growth rate in 2023 was also revised down from 16% to 15%, and the growth of the production volume was revised down from 115,000 pieces per month to 74,000 pieces per month, mainly reflecting the general slowdown in DRAM operators under weak demand. Moreover, under US sanctions Chinese mainland measures, the Wuxi plant of SK Hynix in South Korea cannot purchase EUV equipment. In addition, with the delayed release of the Eagle Stream platform, DDR5's share of global server shipments in the fourth quarter of 2023 will be revised down from 60% to 29%, reducing the bit supply loss caused by the large size of DDR5 dies. In addition, South Korea's Samsung slowed down the conversion of Line 13's DDR3 production capacity to CIS. Finally, China Changxin Storage's DDR3 products were postponed to the fourth quarter of 2022.

The corporation emphasized that South Korea has been actively lowering prices since August to stimulate demand due to the imbalance between production and sales. However, the inventory levels of the three major DRAM operators still accumulated from 9 weeks at the end of June to 13 weeks at the end of September, resulting in continued inventory accumulation in the fourth quarter of 2022. For DDR4 8Gb on 20nm process, the contract price of US$2.86 in the third quarter of 2022 is 1% lower than the estimated production cost of US$2.84 and US$1.94 in cash, respectively, and will push marginal operators to reduce production in the fourth quarter of 2022 and the second quarter of 2023, respectively.

Based on the above outlook of falling production costs and cash production costs, it is inferior to the downward cycle in 2015~2016 and 2019~2020, mainly because the downward revision of industrial demand is too fast, making it difficult to adjust supply in real time, so the investment rating and target price amount of South Asia Technology are revised downward.