With the demand for memory driven by AI servers, the industry initially expected contract prices to ease and decline in the fourth quarter. However, sources within the supply chain indicate that while server memory and enterprise-grade SSDs continue to see slight increases, the growth rate has noticeably slowed.
Previously, the market estimated that NAND wafer prices might drop by more than 10% in the fourth quarter. Yet, based on preliminary pricing released by upstream manufacturers, overall contract prices for the fourth quarter are expected to remain stable, disregarding the ongoing downward trend in spot market prices.
The industry notes a significant increase in high bandwidth memory (HBM) demand, with customers seeking long-term contracts to secure production capacity. The three major memory manufacturers are aggressively expanding their HBM capacities, projecting that from 2023 to 2025, there will be exponential growth in bit density. Currently, HBM3E utilizes 24Gb single-die stacking, which will consume 2 to 3 times the wafer volume compared to DDR5, with a production cycle of at least two months longer than DDR5. Although all three companies are striving to improve yield rates, the average yield may fall below 70%.
Despite earlier concerns about potential oversupply, SK Hynix's impressive financial report for the third quarter of 2024 has reassured the market. Not only did HBM sales grow over 70% quarter-on-quarter, but its revenue share from DRAM is also set to continue increasing. The newly launched 12-layer stacked HBM3E is expected to become the main product shipped in the first half of 2025, emphasizing that HBM demand will exceed supply.
As for Samsung Electronics (Samsung), which has yet to announce entry into Nvidia's supply chain, reports suggest that due to short-term HBM shortages, Nvidia has conditionally agreed to source supplies from Samsung, although product specifications and proportions remain limited.
End customers shifting towards DDR5
A memory vendor stated that with specification upgrades driving prices upward, HBM prices are bound to rise by 2025. Server memory such as DDR5 has seen continuous price increases over the past year, but it still lags behind HBM by 3 to 4 times, suggesting that the upward momentum for DDR5 could extend through 2025.
However, the market believes that procurement momentum among server clients is slowing, inventory levels are gradually rising, and with DDR5 supply improving, the price increases in the fourth quarter will be moderate. Compared to the double-digit percentage increases in server memory prices during the third quarter, recent contract prices for server memory have largely been finalized, with DDR5 seeing low single-digit increases, though customer acceptance remains to be observed.
In the DDR4 market, supply conditions are chaotic, leading end customers to shift towards DDR5, making it difficult to resolve inventory issues for DDR4 in the short term. DRAM manufacturers have matured their 1Z process, and Taiwanese and Chinese memory firms have begun mass-producing DDR4. Demand in the channel market is sluggish, with even the prices of dismantled resale or secondary products being deemed too high by customers.
Regarding enterprise-grade SSDs, 4G PCIe storage capacities above 15TB saw a slight decrease of 1-2%, while those below 15TB increased by 2-10%. In contrast, 5G products experienced nearly universal price hikes. While the industry anticipates that server procurement momentum will stall in the fourth quarter, resulting in an overall decline in purchasing volumes compared to the third quarter, upstream NAND manufacturers are controlling prices and actively securing orders, allowing enterprise-grade SSDs to maintain single-digit price increases even in the typically slow fourth quarter.
Nevertheless, aside from server applications, overall contract prices in the fourth quarter are seemingly unable to rise further. Memory module manufacturers reveal that upstream contract prices will remain flat in the fourth quarter. Although the upward trend has paused, the industry expects substantial price reductions, especially since the spot market has declined for several consecutive quarters, coupled with weak demand in the PC and consumer markets. Some manufacturers are struggling with depressed demand, facing high inventory costs and increased cash flow pressures.
A module manufacturer privately stated that upstream suppliers were overly optimistic about market recovery at the beginning of the year, believing that the fourth quarter would inevitably witness a shortage of memory supply, thus driving prices significantly higher. As a result, downstream players accumulated considerable inventory between the second and third quarters, leading to stockpiles filling up across terminal channels and agents. It is anticipated that some memory module manufacturers may face losses due to falling prices in the fourth quarter, forcing them to sell previously purchased high-priced inventory at lower prices to address cash flow issues.
