Price decline predicted due to oversupply upon transition to 3D NAND technology

The semiconductor market follows an investment cycle. A downturn is expected to begin in the second half of this year.

Jim Handy, an analyst at Objective Analysis, stated this at a press conference for 'Semicon Korea 2018.' He explained that when companies invest excessively, oversupply leads to a drop in prices, which in turn reduces investment. As investment decreases, prices fall and stabilize. He noted that there exists a cycle where investment increases again once stabilization occurs.

The semiconductor market grew by 22% in 2017 as the memory boom continued. Jim Handy predicted that "this year will see a 10% growth rate," forecasting that DRAM would grow by 12% year-on-year and NAND flash by 9%. This represents a significant decrease compared to last year's growth forecasts (80% for DRAM and 50% for NAND flash).

The decrease in figures is due to the expectation that the market will remain strong through the second quarter following the beginning of the year, but will enter a downturn cycle starting in the second half. Regarding this, Jim Handy explained, “Demand will not change much, but since the market is product-based, there will be oversupply,” adding, “New applications using semiconductors will emerge, but this will not lead to a rapid increase in consumption immediately.”

The reason for the predicted oversupply is technological stagnation. Jim Handy analyzed, “Looking at past cases, when technological stagnation occurred, supply became scarce and prices rose, but once the technological issues were resolved, prices fell. This happened when 90-nanometer process technology was introduced in 2005. Once the transition of NAND flash technology from 2D to 3D is mastered, there will be an oversupply and prices will start to fall.”

He added, “If 3D NAND prices fall, semiconductor companies will close their NAND factories or convert them into DRAM plants,” and “if this conversion leads to an oversupply of DRAM, there is a high possibility that they will close the facilities again or convert them to other uses such as foundry or SRAM.”

He predicted that new demand in the semiconductor market would come from autonomous vehicles, the Internet of Things, and artificial intelligence. He stated, “Use cases for artificial intelligence and the Internet of Things have not yet emerged. Although the technology for autonomous vehicles is advancing rapidly, it will take at least 5 to 10 years for it to be actually applied,” adding, “We must view the impact of new applications on market demand from a long-term perspective.”

China is also expected to make significant investments by 2020 under government leadership. However, many challenges remain, including intellectual property rights, wafer issues, and a shortage of fab engineers. It is anticipated that oversupply will begin once China starts full-scale mass production following the commencement of mass production by Samsung and SK Hynix. Consequently, it is predicted that intensified competition will lead to restructuring among the companies currently dominating the DRAM market.

“Currently, Samsung Electronics, SK Hynix, and Micron are making a lot of money in the DRAM market, but although it is unclear who it will be, one of the three companies will disappear and only two will remain,” he predicted.