What’s The Outlook Like For The NAND Market And Samsung’s NAND Business?

The NAND memory market had a solid 2017, driven by strong demand from both the mobile and server verticals, as well as some capacity constraints that were brought about by major producers migrating to or improving their 3D NAND fabrication processes. However, the market has moved towards equilibrium in 2018, as most vendors are reaching maturity with their 3D NAND stacking technologies, significantly improving capacity in the industry and hurting pricing. During Q1 2018, Samsung Electronics (OTC:SSNLF), the largest NAND producer by revenue, saw its NAND flash bit shipments decline on account of seasonality in the data center and the mobile device markets. The increasing supply also meant that the company had to reduce prices for client and enterprise SSDs to stimulate demand. Samsung’s NAND Flash revenue for Q1’18 was $5.82 billion, down by 5.6% sequentially, per DRAMeXchange. The company’s market share stood at about 37% during the quarter. That said, we believe that Samsung’s NAND business may not be impacted very significantly by the oversupply for a couple of reasons.

We have created an interactive dashboard analysis, which outlines how Samsung’s key segments are likely to perform this year. You can modify these drivers to arrive at your own price estimate for Samsung.

NAND Pricing Pressure

While NAND prices are likely to continue their descent, it’s unlikely that the total revenue impact will be as pronounced for most vendors, including Samsung. Unlike the DRAM market, where demand is relatively inelastic, there is significant demand elasticity in the NAND space. When prices rise significantly, customers typically cut back on volumes, limiting capacity expansions on their devices. Many OEMs limited their demand over the last year, due to surging prices, with base models of devices offering 16 GB or 32 GB of memory. However, with NAND prices on the decline, it’s likely that smartphone and PC makers will upgrade the storage specifications of their new products this year, taking advantage of lower pricing. Moreover, NAND producers may still be able to maintain strong levels of profitability, despite the oversupply situation, as the costs of producing NAND using 3D NAND technology have been declining. Samsung is ahead of the curve with its 3D NAND transition, as it began producing  64-layer 3D NAND well ahead of other vendors, with its DRAM mix projected to rise to as much as 60% to 70% in 2018. The company has typically focused on higher-value products such as NVMe SSD for data centers where the pricing impacts are likely to be less pronounced.