[PConline News] In the past year, memory prices have surged, with NAND flash prices also rising significantly. However, Morgan Stanley has recently downgraded several chip stocks, suggesting that flash memory prices may fall next year and that earnings growth could slow down.
In a report released to clients on Sunday, analyst Shawn Kim stated: "We believe it's time to reduce exposure to NAND flash and Asian semiconductor markets. The industry has benefited from strong demand and pricing power in recent years, but these advantages are likely to fade soon. Based on our understanding of the semiconductor cycle, we can no longer recommend this sector unless there is a slowdown in NAND price pressures that could affect logic chip growth in the near future. While the global memory market is currently at its peak, we are not optimistic about its long-term outlook."
As a result, Morgan Stanley downgraded Western Digital, Samsung Electronics, and TSMC from "overweight" to "equal weight." This move sent shockwaves through the market, with Samsung Electronics (005930.KS) dropping 5% by the close of trading on November 27. Other memory chip makers also saw their shares decline.
A report from Tamron 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 chips have become less clear.
The storage industry is highly cyclical. In recent years, the rise of servers, cloud storage, and smartphones fueled what many called a "super cycle" for memory chips. Now, according to Sean King, flash memory prices are showing signs of decline, and according to a quantitative model, DRAM prices are expected to peak in mid-2018. Investors are advised to sell related stocks within the next three to six months as the market often reacts faster than actual price movements.
Interestingly, Micron Technology remains the only storage company rated "overweight" by Morgan Stanley. The firm explains that, compared to flash memory, the supply and demand fundamentals for DRAM appear more attractive. However, major players like Samsung have not yet responded to this shift.
One objective reason behind the slowdown is changing market demand. The previous "super cycle" was driven by a surge in solid-state storage demand across servers, smartphones, and personal computers. Now, demand is shifting from incremental growth to stock market absorption, causing a slowdown in memory demand. This is one of the main reasons Morgan Stanley has downgraded its ratings for the storage industry moving forward.
On the subjective side, the industry is dominated by a few major players. Although no single company holds a monopoly, the limited number of competitors gives them full control over pricing. In a seller’s market, buyers have little leverage. However, after a period of abnormal growth, memory prices have risen sharply, while demand has slowed significantly. As a result, the storage industry is expected to face a slowdown in growth next year, forcing the big players to adjust their strategies accordingly.
Meanwhile, the domestic semiconductor industry is facing its own challenges. Whether it’s display screens, processors, or memory, the future looks crowded, and the final outcome remains uncertain.
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