DRAM – What's Going On_

Summary of Conference Call on S. Korea Technology - DRAM Market Industry Overview - The conference call focused on the DRAM market within the S. Korea Technology sector, highlighting the current downturn in the memory cycle and its implications for major players like Samsung Electronics and SK hynix [1][1]. Key Points and Arguments 1. Memory Recession: The memory recession has officially begun, with pricing pressures expected to continue into 2025. Inventory levels are rising, and moving bit shipments has become increasingly difficult [1][1]. 2. Pricing Trends: - DRAM pricing for DDR5/LPDDR5 has turned negative in Q4 2024 due to weak demand, with a potential double-digit quarter-over-quarter decline anticipated in Q1 2025 [1][1]. - Customers are hesitant to accept bids as expectations for future pricing have reversed, leading to stalled orders and excess inventory [1][1]. 3. Inventory Levels: - DRAM inventories have increased entering Q4 2024, remaining elevated across the supply chain, with module makers holding an all-time high of 11-16 weeks of DRAM inventory [1][1]. 4. Supply-Demand Dynamics: - The supply balance is shifting towards excess in Q1 2025, a significant change from previously forecasted shortages [1][1]. - The potential decoupling of HBM (High Bandwidth Memory) from DRAM pricing is uncertain, as HBM relies on the same wafers as commodity DRAM, suggesting that HBM pricing may also need to adjust downward [1][1]. 5. Earnings Outlook: - Earnings estimates for DRAM companies are expected to be downgraded, particularly due to the weakness in DDR4 affecting DDR5 pricing and the current excess supply [1][1]. - Historical data indicates that the DRAM down-cycle typically results in 11 months of share price underperformance following the year-over-year peak in pricing, which occurred in July 2024, suggesting a challenging outlook until mid-2025 [1][1]. Company-Specific Insights 1. Samsung Electronics: - Rated Overweight (OW) relative to SK hynix, with consensus 2025 estimated DRAM operating margins near peak levels of approximately 50%. However, the implied downside in the commodity cycle for the first half of 2025 is not yet reflected in the stock price [1][1]. 2. SK hynix: - Rated Underweight (UW), with a noted decline of only 5% in estimated EPS since its peak in August 2024, indicating potential vulnerabilities in the upcoming cycle [1][1]. 3. Longsys: - Rated Underweight (UW) due to expected revenue and margin pressures from volatile spot market pricing and volume shrinkage [1][1]. Additional Important Content - The report emphasizes the risks associated with the DRAM market, including potential overspending on the supply side due to rising competition for DDR5 and the possibility of weaker-than-expected end demand [14][14]. - The analysis also highlights the importance of technological advancements and market dynamics, particularly in relation to AI and hyperscale data center growth, which could influence future memory cycles [16][16]. This summary encapsulates the critical insights from the conference call regarding the DRAM market and its key players, providing a comprehensive overview of the current landscape and future expectations.