Things aren't as bad as they seem. As capex cuts take hold, demand (price) elasticity kicks in and the low end junk that I think is poisoning the well right now gets taken out of the system the stock should respond......
Global Memory Tech Weekly themes: iPhone spec upgrade, NAND correction, Micron, Korea tech tour
Theme of the week: iPhone tech spec upgrade on track New iPhone tech spec upgrades with OLED (6.5”, 5.8”), NAND (new inclusion of 512GB vs previous max 256GB) and DRAM (4GB vs 3GB) were confirmed on 12 September. Dual-cam modules will also be used for two OLED models (XS, XS Max) and full penetration of 3D sensor modules is also seen (vs only one model X last year). The mix ratio between the three new models (including LCD phone XR) should be a swing factor. However, we tentatively conclude new iPhones consume 30-40% more memory chips vs a year ago. This presents a potential shortage of DRAM (chipmakers’ supply growth 20% YoY or less) vs somewhat balanced for NAND (40% +/-). In fact, China OEMs have already input 4-8GB DRAM content for their major flagship models (Huawei Honor, Xiaomi Mi 8, Vivo Nex, Oppo Find, etc) and their long-term orders already indicate 10- 12GB (for 2020-21); three-year CAGR in DRAM content growth is near 22% (still higher than chip supply growth). NAND content (64-128GB as mainstream among China highend smartphones), however, is still much lower than for new iPhones. This should also suggest upside to NAND demand from China OEMs if they compete with Apple for tech spec evolution. Net-net, smartphone memory content growth appears a positive catalyst for chipmakers given supply will likely be tight to meet demand.
Spot price: NAND card correction notable vs stable DRAM NAND flash-card prices declined sharply this week (down 10% WoW for 16-64GB). We believe this is just a temporary hard landing coupled with low-end 3D NAND chips (which were originally for SSD or smartphone storage, but did not qualify due to quality issues). Our immediate checks for other NAND chips for the new iPhone, China high-end smartphones and SSD still show marginal corrections (1-2% decline, thus in line). Most chipmakers still guide low-to-mid-teen NAND ASP decline for 3Q18 vs spot near 20- 25%; the difference is likely to be a matter of relatively stable contract prices. We do not yet see any sign of NAND price recovery, but at least a few catalysts present better pricing momentum for 4Q18 (10% ASP decline or single digit), new iPhone impact (256- 512GB mix upside), demand rise after 20-30% ASP decline in 2-3Q18 and chipmakers’ normalized inventory (4 weeks for 3Q-end vs 5-6 weeks in 2Q). DRAM spot also softened this week, but only 1-2% correction seen while contract prices appear stable.
Earnings preview: Micron likely to retain positive guidance
Micron’s August-end 4Q FY18 results call is scheduled for 20 September, 4:30pm ET.
New guidance will likely be broadly optimistic led by DRAM (high margin, stable ASP or
just small correction), which offsets NAND risk (price weakness). Capex rise (US$9-10bn
possible for FY19 vs US$8bn for FY18) should be for existing fab upgrades and partially
new shell fab construction in Singapore; no meaningful wafer capacity expansion.
Korea tech tour: Semis, MLCC and OLED focused We will host a Korea tech tour with semis industry experts, equipment vendors, material suppliers (MLCC, foldable OLED), auto memory distributors, etc, on 17 September; tech optimism will likely be discussed in depth. |
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