After dire year, memory chips poised for strong 2020

The memory chip market, mired in a brutal downturn throughout 2019, seems to have bottomed out amid signs that inventories are dropping and demand is rising, indicating a brighter year for the sector in 2020.These, at least, are the findings of analysts and reports, which cite rising uptake of 5G as a 2020 boost, as well as increased investments by the “Big Five” global tech firms, and a projected uptick in the PC market.

Stay with us for an article, titled, “After dire year, memory chips poised for strong 2020”. This interesting article has been written by China based columnist, Lee Shin-hyung.

It’s welcome news for South Korea and Samsung Electronics. Memory chips are a critical national export for the country and a key product for the Asian mega-manufacturer. Even so, the upturn is not expected to be as exuberant as the boom year of 2018.

Industry research organization World Semiconductor Trade Statics Semiconductor Market Forecast in a December 3 forecast reported, “The memory market is expected to grow 4.1% to $110.3 billion in 2020 from $105.9 in 2019,”.

That is a turnaround from 2019. “The memory chip market is expected to decrease 33.0% in 2019 from $157.9 billion in 2018,” the research group noted.

The shift follows a desperate year for memory chips, which suffered a record decline.

According to Eugine Investment and Securities of South Korea, monthly global sales of memory chips plunged 59% to $67.3 billion in April this year from a peak of $162.6 billion in September 2018. That decline was a record: It surpassed the previous 41% and 35% declines from peaks in earlier downturns.

Lee Seung-woo, an industry analyst of Eugine Investment and Securities, in a November 11 report said, “Overburdened inventory is easing, and there is a sign that memory chip demand is recovering, particularly in the mobile phone and server sectors.”

The market appears to have hit bottom: The Eugine report stated, “the worst is over.”

Kim Yang-paeng, a researcher at the Korea Institute for Industrial Economics & Trade agreed. He said, “Lowered inventory levels mean that the downward pressure on memory chip price has eased, and expectations for a price hike are growing.”

Lee projected the DRAM and NAND flash memory markets to grow 8% and 29%, respectively, to reach values of $68.7 billion and $52.2 billion, in 2020. He also expected the sector to continue its growth in 2021.

In its report, “Asia-Pacific Portfolio Strategy,” published on November 24, Goldman Sachs wrote, “We expect the tech hardware sector to lead an earnings recovery in both Korea and Taiwan on stabilizing memory pricing, normalizing DRAM/NAND inventories and better demand/supply dynamics.”

Adding muscle to the sector next year is an anticipated uptick in 5G demand.

Mobile phones overall are critical for the industry: They take up 35% of the total memory chip sector, according to Lee of Eugine Securities. Akash Palkhiwala, the Chief Financial Officer & Senior Vice President of Qualcomm told a fourth-quarter earnings call that his firm anticipates a rise a 3% rise in smartphone sales in 2020 over 2019.

The latest and most advanced mobile standard, 5G saw early rollouts in South Korea, China and the United States in 2019. 5G is expected to gain wider international traction in 2020.

Goldman Sachs expected 5G smartphone demand to increase, boosting memory chips. It recently raised its estimate for the sale of 5G smartphones to 200 million units, as opposed to 120 million units it had estimated earlier. Qualcomm, the world’s largest smartphone chip maker, projected similar volumes. “We are estimating 175 million to 225 million 5G handset units in calendar 2020,” Palkhiwala said.

5G phones require more memory than previous models.

Demand from data centers and PC makers is also expected to grow.

Investment in capacity upgrades by the tech ‘Big Five” – Google, Microsoft, Amazon, Facebook and Apple – are critical in sectoral demand: The firms run data centers that need huge amounts of memory.

Lee is seeing a rising trend, the ratio of capacity investment to revenue by the big five’s data centers, which rose to a peak of 11.2% in the first quarter of last year, fell to 8.1% in the first quarter this year. But that figure had recovered to 8.4% in the second quarter, and to 9.4% to $21 billion in the third quarter this year.

Demand from PC makers is also expected to grow as the production of PC is forecast to increase next year for the first time in eight years.

Lee said, “The global PC market is expected to grow in 2019 and continue to grow with a narrow margin in 2020…as corporate demand for replacement PCs will increase due to the termination of Windows 7 for corporate users. Demand for gaming PCs is also expected to increase.”

SS