[PConline News] Over the past year, memory prices have surged, with NAND flash also experiencing a significant rise. However, Morgan Stanley has recently downgraded several chip stocks, predicting that flash memory prices will decline next year and that earnings growth will slow.
In a report released to clients on Sunday, analyst Shawn Kim stated: "We believe it's time to reduce exposure to NAND and Asian semiconductor markets. This is because the industry has benefited from smooth growth driven by strong demand and pricing power, but these advantages are likely to fade soon. Based on our understanding of the semiconductor cycle, we can't continue to recommend this sector unless we see a slowdown in NAND price pressures affecting logic chip growth in the near future. While the global memory market is currently at its peak, we're not optimistic about its long-term outlook."
As a result, Morgan Stanley downgraded Western Digital, Samsung Electronics, and TSMC from "overweight" to "equal weight." Shares of Samsung Electronics (005930.KS) fell 5% on November 27, with other memory chip companies also seeing declines.
Tamron’s report predicts that Samsung’s memory chip business will not see significant growth next year, citing the risk of a recession. It notes that NAND wafer prices began to reverse in Q4 2017, and since the first quarter of 2018, the supply-demand dynamics for DRAM have shown signs of weakening.
The storage industry is highly cyclical. In recent years, demand from servers, cloud storage, and smartphones fueled a "supercycle" in memory chips. Now, Sean King says that flash memory prices are showing a downward trend, and according to quantitative models, DRAM prices are expected to peak in mid-2018. Investors are advised to sell related stocks within the next three to six months, as capital flows often move faster than market reactions.
Micron Technology is the only storage stock still rated "overweight" by Morgan Stanley, which argues that the supply and demand fundamentals for DRAM are more attractive compared to flash memory. Major players like Samsung have yet to respond effectively to this shift.
A key objective reason behind the slowdown is changing market demand. The previous "supercycle" was driven by a surge in solid-state storage demand across servers, smartphones, and PCs. However, demand is now shifting from an incremental market to a stock market, causing slower growth in memory demand. This is one of the main reasons Morgan Stanley has lowered its ratings for the storage sector.
Subjectively, the industry is dominated by a few major players. Although no single company holds a monopoly, the limited number of suppliers gives them full control over pricing. In a seller’s market, buyers have little bargaining power. However, after a period of abnormal growth, even though current memory prices are high, demand has slowed significantly. As a result, the storage industry is expected to see reduced growth next year, forcing major players to adjust their strategies.
Additionally, the domestic semiconductor industry, including companies like Daxing, is facing intense competition across displays, processors, and memory. The final outcome remains uncertain, but the path ahead looks increasingly challenging for all players involved.
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