Surrounding the semiconductor price rise, the market concerns are rapidly shifting from 'how much can prices rise?' to 'have prices already peaked?'
Due to the slight decrease in the export prices of DRAM and solid-state drives (SSD), people are beginning to worry that memory prices may have peaked last month. Additionally, despite Samsung Electronics announcing a record-breaking second-quarter earnings report, its stock price has fallen, which has shifted market attention from current profitability to the sustainability of large technology companies' artificial intelligence investments and future profitability growth rates.
However, a closer analysis of supply and demand indicators reveals a different picture. Experts believe that the slowdown in price growth and the solution to the memory supply shortage are two different problems.
Market research company IDC pointed out in a webinar titled 'Memory Market Outlook: When Will Supply Shortage End?' on July 8 that the supply tension has delayed the memory market's turning point to the second half of 2028.
According to IDC's prediction in June, the supply-demand ratio of DRAM was actually lower than the prediction in March last year. It is expected that by the fourth quarter of 2027, the supply shortage rate of DRAM will expand to around 13%, while the supply shortage rate of NAND flash is expected to remain around 3% to 4% throughout 2027.
Although it is expected that the production growth rate of DRAM will lag behind the growth rate of demand in both this year and next year, the production growth rate of NAND is expected to be generally in line with demand. This means that the market has not yet reached its peak, but has entered a phase where the supply shortage is exacerbated, centered on DRAM. IDC describes this year and next year as a historic period of high-speed growth, with supply shortage and price surge occurring simultaneously.
The supply shortage is behind the transformation of the production structure, not just the growth in demand.
According to IDC, even though DRAM production capacity has grown by nearly 10%, more than 30% of the capacity has been allocated to high-bandwidth memory (HBM) and SOCAMM, etc. for artificial intelligence products. A significant portion of the capacity has been secured through long-term agreements (LTAs). Even if factories and equipment are constantly expanded, the supply volume of general DRAM market is bound to be limited.
The same applies to NAND flash, where, apart from China's YMTC technology company's new wafer factory, there is almost no large-scale capacity expansion. Even if the investment growth rate of large technology companies has slowed down, their structure determines that the general DRAM market still lacks sufficient supply.
The demand center is also shifting from mobile devices and PCs to servers and enterprise-level products. IDC predicts that by 2030, servers and HBM will account for over 60% of DRAM demand, while NAND's share in enterprise-level SSDs will also rapidly increase.
Diagnostic results show that a new cycle is forming, which is different from the past, where supply shortage was quickly resolved through new factory construction, because storage devices are shifting from consumer electronics products to support artificial intelligence data centers infrastructure.
Following the signing of the first five-year strategic customer agreement (SCA) in March last year, Micron has increased the number of contracts to 16 in just three months, including 14 contracts that will be calculated at the minimum price during the remaining contract period, with a cumulative income of approximately $1 trillion.
The signed contracts cover around 20% of Micron's DRAM sales and around one-third of its NAND flash sales (during the contract period). Micron expects that once all the planned contracts are finalized, more than half of its total revenue will come from long-term contract agreements (SCA).
These contracts adopt a 'pay-as-you-go' model, where clients must purchase a certain quantity of products. This indicates that the memory market, which was previously centered on quarterly price negotiations, is shifting towards a model where enterprises lock in sales volume for several years in advance.
This aligns with IDC's view that long-term contract agreements (LTA) are the key conditions to ensure stable supply. Even if prices rise, clients who have not signed long-term contracts may find it difficult to obtain the required sales volume in a supply-constrained environment.
Jefferies predicts that memory prices will surge significantly in the second half of this year and will not show a significant downward trend before 2028. Gartner analysis points out that as HBM absorbs most of the new production capacity, the general DRAM supply will be further tightened.
Counterpoint Research also believes that supply chain normalization will not be achieved until at least early 2028.
The key point to note is the 'decoupling' of price and supply-demand relationships.
IDC predicts that as memory prices approach their limits, prices will start to fluctuate independently of supply-demand relationships. Given that server DRAM contract prices have risen significantly every quarter this year, future growth slowdown is a natural law.
This means that even if some products' prices decline from last month or last quarter, it will be difficult to interpret it as a signal of market reversal if the absolute price remains at a historical high and supply shortage continues to exist.
Manufacturers are also likely to shift their strategy from price hikes to supply control. Unlimited price hikes may lead to increased resistance from personal computer and smartphone manufacturers, etc. for consumer electronic devices. Instead, they can maintain high profitability by adjusting supply quantities according to products and clients and prioritizing supply to strategic clients who have signed long-term contracts.
There are still variables. The profit announcements and artificial intelligence investment plans of large technology companies such as Google, Amazon, and Meta will be key nodes to confirm demand sustainability. High-priced memory may increase the cost burden of consumer products and suppress demand, which cannot be ruled out.
However, the slowdown in price growth and the solution to the supply shortage problem are not synonymous. This is because HBM's technical limitations, large wafer investments, and the continued expansion of long-term contracts are constraining the supply of general storage devices.
IDC Vice President Kim Soo-kyum predicts, 'Although the storage cycle still exists, it has been prolonged and its strategic significance has become more pronounced compared to the past.' He added, 'The turning point of the memory market is expected to be delayed by about a year and will appear in 2028, followed by gradual adjustments.'