China-U.S. Ocean Rates: Peak Season has Arrived
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Demand-side inventory for DRAM in 2H19 has returned to relatively healthy levels, according to the DRAMeXchange research division of TrendForce. Furthermore, some vendors pulled their quarterly product shipment forward to avoid potential negative impacts from Trump’s impending tariffs; this shift skyrocketed DRAM suppliers’ sales bits in 3Q19, driving total DRAM revenue up by 4 percent and ending the QoQ decline which lasted over three consecutive quarters. Despite an already strong-performing base period in 3Q19, the three major DRAM manufacturers are projected to increase their shipments even further in 4Q19, propelled by demands from the server and smartphone markets.
Regarding the performance of 3Q19 revenues, Samsung increased its sales bits by 30 percent and quarterly revenue by 5 percent QoQ to $7.12 billion because Chinese smartphone vendors aggressively pulled their quarterly shipment forward and because demand in the server market has gradually recovered. Likewise, SK Hynix grew its sales bits by 20 percent and quarterly revenue by 3.5 percent to $4.41 billion. On the other hand, because of Micron’s relatively weaker base period in 2Q19, it increased its sales bits by almost 30 percent, and its revenue reached $3.07 billion. However, Micron’s market share dropped below 20 percent. TrendForce believes that Micron’s lack of greenfield fabs – and the corresponding lack of wafer inputs – will lead to a continued reduction in market shares.
Despite positive movements in shipment numbers, DRAM suppliers saw diminished operating profit margins due to a 20 percent industry-wide decline in ASP. Samsung’s quarterly operating profit margin fell to 33 percent, from 41 percent the previous quarter. This decline is close to the company’s typical medium-to long-term threshold of 30 percent. Therefore, TrendForce expects Samsung to be relatively unwilling to commit to future price cuts. On the other hand, SK Hynix engaged in a comparatively aggressive cost reduction initiative by transforming part of its server DRAM production capacity into mobile DRAM production capacity in 3Q19. This cost reduction, combined with a weak base period in 2Q19, resulted in a relatively modest dip in operating profit margin from 28 percent to 24 percent in 3Q19.
Micron had a slightly higher ASP decline during the June-to-August fiscal quarter compared to Korean manufacturers, whose corresponding fiscal quarter ran from July to September. As a result, its drop in operating profit margins was more drastic as well, from 35 percent in 2Q19 to 24 percent in 3Q19. If the decline in ASP remains minimal, and cost reductions continue, then manufacturers can maintain their current levels of profitability well into 4Q19 without any significant downturn.
From a technological perspective, Samsung has maintained a consistent level of wafer input this year, but it will gradually convert the production capacity of Line 13 at its Hwasung factory from DRAM to CMOS image sensors. However, the reduction in wafer input at Line 13 will be partially offset by Samsung’s second memory fab in Pyeongtaek, which is expected to begin mass production, including 1Znm process technology, soon. Overall, Samsung will neither make substantial changes to its wafer input next year, nor have 1Znm process occupy a large share of its process nodes. The company is expected to remain cautious in raising its output.
Similarly, SK Hynix next year will both convert its M10 wafer input from DRAM into CMOS image sensors and increase the output of its M14 fab. Regarding its two recently constructed Wuxi-based fabs, because of the influence of the China-U.S. trade war, their wafer input will follow a relatively conservative plan. Finally, Micron Memory Taiwan (formerly Rexchip) has completely adopted the 1Xnm process while aiming for 1Znm as its next target, with actual output planned for 2020. Over half of the process nodes at Micron Technology Taiwan (formerly Inotera) are now 1Xnm, with 30 percent of total process nodes being 1Ynm.
In terms of Taiwanese manufacturers, owing to the over 35 percent increase of its sales bits, Nanya was able to grow its revenue by 18.7 percent QoQ despite a double-digit drop in ASP. However, its gross profit margin and operating profit margin both saw ongoing decline. Considering the comparably strong 3Q19 base period, it is likely that Nanya will have weaker 4Q19 shipment numbers, and it will require more time for the company’s profitability to bounce back. On the other hand, Winbond showed consistently robust performance, with a 5 percent QoQ growth in DRAM revenue. Lastly, Powerchip suffered from its clients’ high inventory levels and reduced its shipment, causing a 6 percent decline in revenue (note: this calculation pertains only to Powership’s own DRAM products and does not include its DRAM foundry service).
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