China Securities News, August 19th (Reporter Wang Biwei) After three quarters of continuous price increases, DRAM continued its strong upward trend in Q3 of this year. According to TrendForce, conventional DRAM contract prices in Q3 are expected to rise by about 5 percentage points more than previously expected.

However, due to the structural recovery of downstream demand, there is a clear divergence in the performance of companies in the storage industry chain. Companies in the upstream DRAM factories such as Samsung and Micron have generally experienced high Q2 growth, while module manufacturers represented by A-share listed companies such as Biwin Storage (688525.SH), Netac Technology (300042.SZ), and Jiangbolong (301308.SZ) have seen mixed performances.

According to interviews conducted by China Securities News, under the dual pressure of rising storage chip prices and falling prices for some downstream consumer products, if manufacturers did not sufficiently stock up at last year’s low point, they face greater pressure now.

DRAM Q3 increase exceeds expectations

Last year, the memory industry was in a slump. According to Yole data, the annual sales of DRAM in 2023 were $52 billion, the lowest level since 2016. Starting from Q3 of last year, upstream memory factories such as Samsung and Hynix began to control production and increase prices. This year, the prices of memory factory products have continued to soar due to factors such as the rapid development of AI, which has increased demand for some storage products and changes in the distribution of factory production capacity.

According to TrendForce, after quarterly revenue growth of 5.6% in Q1, reaching 18.35 billion dollars, DRAM revenues increased by about 24.8% QoQ to achieve 22.901 billion dollars in Q2, with a YoY increase of 100.4%.

TrendForce analyst Wu Yating told China Securities News that in the first half of this year, the increase in DRAM prices was mainly driven by sellers. The main reason was that the utilization rate of the original factory capacity was low, leading to a reduction in supply. At the same time, the rapid development of AI has increased the demand for HBM. In the second half of this year, the industry is expected to rebound driven by downstream demand.

Recently, TrendForce raised its estimated increase of conventional DRAM contract prices for the third quarter from 8% to 13%, an increase of about 5 percentage points higher than the original estimate.

TrendForce analyst Xu Jiayuan told reporters, “This round of unexpected price increases is influenced by three factors, the first being Chinese CSP manufacturers actively stocking up due to concerns about future market fluctuations. Secondly, the limited production capacity of HBM (high-bandwidth memory) has become more apparent, and some manufacturers have been affected by HBM3e which affects DDR5. In addition, the market has adopted a strategy of quantity over price.”

It is worth noting that this round of price increases in the storage market does not necessarily mean that the market is recovering as a whole. A representative from the securities department of Netac Technology told a reporter, “This rebound in storage is structural, and only some application scenarios are experiencing a rebound.

According to the latest terminal product quotations in the flash memory market, consumer-level storage products such as DDR4 and SSD have experienced slight price declines since the latter half of May. According to Slowly Buy App, the JD.com price of a 1TB SSD solid-state hard disk product produced by Netac Technology had fluctuated significantly since July last year, rising from the bottom price of RMB 259 in July last year to RMB 429 on May 25th this year. However, since then, the product price began to fluctuate slightly downward, dropping to a new low of RMB 369 since March of this year as of August 18th.

Xu Jiayuan told China Securities News that the current market demand is mainly driven by AI large models, driving mostly server applications with an increase in demand for HBM, DDR5, and large-capacity enterprise-level SSD. However, demand for consumer-level modules and smart phones has not significantly recovered, leading to the increase in prices for server DRAM and PC DRAM while the prices for consumer-level modules have decreased.

Divergence in downstream manufacturer performance

According to an AI company insider, from Q3 of last year to now, the price of DRAM chips has increased by more than 60%. Under these circumstances, Xu Jiayuan told reporters that this price increase is mainly beneficial to DRAM manufacturers. On the one hand, manufacturers can profit from price increases in mobile DRAM and laptop DRAM. After developing server DRAM, they can also enjoy the high prices and high profits brought by server DRAM.

From Q2 performance that has been disclosed, the original factories have already returned to high-profit operations, showing a gradual increase in profits in each quarter. Samsung Electronics achieved operating profits of approximately KRW 10.4 trillion in Q2, a YoY increase of 1,452.2% and a QoQ increase of 57.3%; Hynix achieved operating profits of KRW 5.47 trillion, a YoY turn-around, and a QoQ increase of 89%. It is evident that original factories have emerged from the shadows of last year.

Xu Jiayuan further stated, “The difference in price trends between original factories and consumer-level storage is mainly borne by module manufacturers. Module manufacturers are currently facing double pressure of rising storage chip costs and falling module prices.”

Currently, except for a few original factories such as Changxin and Changchun, most large domestic storage manufacturers mainly engage in the downstream packaging, testing, and module industries. Therefore, the performance of A-share storage manufacturers has begun to diverge.

Netac Technology, a major module manufacturer specializing in consumer storage, recently released their semi-annual report. In the first half of the year, their revenue was 0.415 billion yuan, a year-on-year decrease of 41.15%. The net loss attributable to shareholders of the listed company was 30.2591 million yuan, an increase of 50.31% year-on-year, which appeared somewhat awkward in the overall theme of "storage recovery."

In addition to the impact of the company's financial report and the mentioned "weakened demand for consumer storage," the securities staff also told the Caixin reporter, "In terms of the cost of raw materials, we did not have much inventory at the lowest point last year, which is indeed a reason that affected a part of our performance."

"You can take a look at the inventory numbers, and you can basically see that they (part of the module factories with performance growth) should have made some big moves in inventory last year." The person further stated.

According to the financial report, Netac Technology's inventory at the end of 2023 was about 0.28 billion yuan, accounting for 20.35% of total assets; while Baiwei Storage, which is expected to achieve a net profit growth of 194%-211% in the first half of the year, has inventory of about 3.552 billion yuan at the end of 2023, accounting for 56.10% of total assets; Jiang Bolong, which is expected to achieve a net profit growth of 187%-202% in the first half of the year, has inventory of about 5.893 billion yuan, accounting for about 43.08% of total assets.

However, some module factories with overall growth also experienced performance fluctuations in Q2. Taking Jiang Bolong as an example, although Jiang Bolong's performance still maintained a high year-on-year growth rate in Q2, the non-recurring net profit has dropped from 0.363 billion yuan in Q1 to 0.107 billion-0.197 billion yuan in the pre-announcement of their performance for the current quarter.