Micron (MU.US) and other memory companies currently have a major problem, large inventories of unsold merchandise which drives memory prices down significantly. The data for smartphones and PCs suggest that the start of a recovery in 2023 will be temporary and will not reach positive rates until 2024. However, the business of sending to servers and cloud capital spending will be less affected with positive growth. although moderate in 2023.
Since June 2022, the semiconductor memory market is in free fall and shares of Micron and others in the industry are plummeting with their share price falling 37.5% over the last period of the year. Clearly, the cause has been a drop in demand for consumer electronics like smartphones and PCs.
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Open real account TRY DEMO Download mobile app Download mobile appWhile the current and future economic situation is worrying and has affected demand, a fundamental underlying cause is excessive capex spending by memory companies over the past year. Excess inventory in today's PC/smartphone customers is intensifying in data centers and memory chip industry sectors with only safe automotive chips so far.
Next we will look at memory revenue data and ASPs (average sales price) that continue to fall based on shipments of mobile terminals, PCs, servers and cloud capital spending.
Bad perspectives on consumers
Currently, the analyst consensus supports the view of a rebound in consumer goods, particularly PCs and smartphones, for the second half of 2023. But that makes sense if we understand that 2022 was a bad year, but the reality is that 2023 It does not point to a full recovery as it will not occur until 2024.
In the first chart below we can see the quarterly unit shipments for smartphones (blue bar) and PCs (orange bar) from Q1 2022 to Q4 2024. Here we can see that shipments will hit a low in the second quarter of 2023 and will begin to show positive quarterly growth in the third quarter of 2023. This consensus data reflects the transition of the business towards growth in 2024.
Chart 1. Source: The Information Network
Demand for these consumer products was so bad in 2022, stretching into 2023, that a year-on-year recovery won't occur until 2024.
- PC shipments fell 15% year-on-year in 2022 and another 10% drop is expected in 2023 before rising 8% in 2024. While PC unit shipments will be lackluster, prices for DRAM and NAND will be low. Due to the oversupply of chips they will be a catalyst for smartphones and vendors to add more memory to new phone models. In the case of mobile phone memories, shipments fell 12% year-on-year in 2022 and another 3% drop is expected in 2023 before rising 5% in 2024.
To understand the difference between DRAM and NAND memory: Unlike DRAM, which requires continuous power to retain data, NAND retains data even when it is not receiving power, making it ideal storage for devices laptops.
Table 2 shows server unit shipments between Q1 2022 and Q4 2023. As with capital spending, unit shipments will decline in Q1 2023 and pick up in Q1 2023. Q2 2023. Hewlett-Packard (HPE) is the dominant provider of mid-range enterprise servers followed by Dell (DELL). IBM (IBM) is the dominant provider of high-end enterprise servers.
Chart 2. Source: The Information Network
Memory revenue is in the chart below 3. Memory revenue fell 43.3% between July 2022 and January 2023, as well as a continuous drop of 12.1% between December 2022 and January 2023. Inside In the memory market, DRAMs fell 46.0% over the 6-month period and another 10.9% between December and January.
DRAM revenue was higher than NAND revenue, and based on trend lines (dotted lines), DRAM revenue growth was higher than NAND during the period July 2019 to January 2023.
Chart 3. Source: The Information Network
Memory ASPs are shown in Chart 4. These fell 34.8% between July 2022 and January 2023, as well as a continuous drop of 3.2% between December 2022 and January 2023. Within the memory memory, DRAMs fell 38.0% over the 6-month period and another 4.6% between December and January. NAND fell 33.3% and rose 1.2%, respectively.
NAND ASPs were higher than DRAM ASPs, but based on trend lines (dotted lines), DRAM ASP growth was higher than NAND during the period July 2019 to January 2023.
Chart 4. Source: The Information Network
In the following table, we compact the above data to compare the changes in the Revenue and ASP metrics.
Source: The Information Network
Investors point of view
Driven by a combination of skyrocketing consumer demand followed by pandemic supply constraints, the traditionally cyclical memory industry moved through a new cycle that began in the first quarter of 2021 and ended in the second. quarter of 2022. The recession was amplified by a high rate of inflation not seen in the last 40 years and recession fears reduced demand mainly for consumer electronics.
Memory prices are falling due to a slowdown in shipments of consumer electronics such as PCs and phones. As demand declines, memory chips don't sell, inventory builds up, and spot prices decline.
Micron's memory semiconductor inventories should peak in Q1 2023 and decline after Q2 due to supply cuts. As a result, industry conditions should improve starting in the third quarter. A recovery in handset sales and data center investment demand is also expected in the second half of 2023. Current overall demand for servers has declined as customers reduced their purchasing budgets.
Technical analysis
Currently, Micron Technologies is recovering after generating a double bottom structure in the area of $48.5 per share. And the most recent lows are higher than the lows of the previous structure, so a bullish process may have begun to recover levels above its 200-period moving average.
The support generated by the rising lows in the RSI indicator offer strength to this technical assessment.
MU.US D1. Source: xStation
If it maintains the current bullish guideline, it could attack the aforementioned average with the intention of looking for a first target at the $65 per share mark, the resistance zone of the first consolidation structure between 2018 and 2020, which was the support zone of the second consolidation process where the technology company set its all-time highs above $98 per share.
Dario Garcia, EFA
XTB Spain
