Capital Points:

Memory prices have bottomed out, and the cycle may recover. The global memory industry is clearly cyclical and is a major factor in the change in the semiconductor cycle. According to InSpectrum data, DRAM and NAND Flash in stock prices bottomed out in September 2023, some DDR3 and DDR4 in stock prices rebounded by more than 10% in September and October, and some NAND Flash in stock prices rebounded by more than 20%. Supply-side output is gradually shrinking and downstream demand is picking up. If downstream demand gradually recovers in 23Q4 and 24 years and the supply-demand relationship continues to improve, memory prices are expected to continue to rebound. At present, the current round of memory down cycle has lasted more than 2 years, from the supply, demand, inventory, price and other aspects of a combination of considerations, the memory cycle recovery or will come.

memory vendors are expected to gain greater profitability in a new upward cycle. From the perspective of profitability of memory manufacturers, the average gross profit margin and average net interest rate of major global memory manufacturers fluctuate greatly in the cycle. According to Bloomberg data, in the last two rounds of memory cycles, the average gross profit margin of major global memory manufacturers at the top of profitability is about 40% and the average net interest rate exceeds 18%. The bottom of profitability in this cycle appears in the first quarter of 2023, with an average gross margin of 13% and an average net margin of-16%, the world's major memory manufacturers have been at a low level over the past 15 years, and memory manufacturers are expected to gain greater profitability in a new upward cycle.

overseas giants dominate the global DRAM and NAND Flash particle market, domestic manufacturers are expected to continue to accelerate development in the niche market. The global memory market has huge space. Due to the extremely high technical and capital barriers in the memory wafer design and manufacturing industry, the global memory particle market is dominated by a few IDM manufacturers. The global DRAM market is dominated by Samsung, SK Hynix and Meiguang. The NAND Flash market is dominated by Samsung, Jiaxia, Western Data, Meiguang and SK Hynix. According to Trendforce data, the global niche DRAM market will be about US $9 billion in 2021, with Taiwanese manufacturers South Asia and Huabang occupying a large market share. According to Gartner data, the global SLCNAND market is expected to reach US $2.3 billion in 2024, with Taiwanese manufacturers Huabang and Wanghong occupying a high market share. Mainland Chinese manufacturers Zhaoyi Innovation and Dongxin Co., Ltd. are actively deploying niche DRAM and SLC NAND markets, beijing Jun is in the automotive market has a strong competitiveness, in the context of the urgent demand for domestic substitution of memory, domestic manufacturers are expected to continue to accelerate the development of the niche market.

huabang, wanghong and zhaoyi innovation dominate the global NOR Flash market, and the rapid growth of small and medium-sized manufacturers promotes the industry to present a trend of diversified competition pattern. According to IC Insights, the NOR Flash market is expected to be around $3.1 billion in 2021. According to CINNOResearch data, the market shares of Huabang, Wanghong and Zhaoyi Innovation in the global NOR Flash market in 2020 are 25.4, 22.5 and 15.6 respectively, with the three manufacturers accounting for more than 60 per cent of the market share. The market share of other small and medium-sized manufacturers in the NOR Flash industry is gradually increasing, from 8.2 per cent in 2018 to 21.6 per cent in 2020, these manufacturers include domestic Pran shares, Dongxin shares and Hengshuo shares, small and medium-sized manufacturers high-speed growth to promote the NOR Flash industry began to show a diversified competitive landscape trend.

IDM manufacturers dominate the global memory module market, domestic memory module manufacturers continue to establish a competitive advantage in the third-party market, is expected to continue to increase market share. According to Yole, IDM manufacturers will account for more than 80% of the global memory, SSD, eMMC and UFS market share in 2021. According to TrendForce data, in 2021, the global third-party memory chip market size of $18.1 billion, Kingston ranked first with 78.7 percent of the market share, domestic manufacturers Jiahe Jinwei, Kingtec, Memory Technology with 2.4 percent, 2.4 percent, 1.9 percent of the market share ranked five to seven. According to TrendForce data, in the global third-party solid-state drive market, Kingston ranked first with a market share of 26% in 2021. Domestic manufacturers Jintaike, Jiangbolong, Longke, Jiahe Jinwei and Rainbow have a market share of 7%, 6%, 6%, 4% and 4% respectively. Domestic solid-state drive brands have risen. According to the flash memory market data, in the global eMMC and UFS third-party brand market, in 2021 Jiangbolong, Kingston, Weiwei storage with 6.5 percent, 5.3 percent, 2.4 percent of the market share of the top three, domestic manufacturers have occupied a leading position. Domestic storage module manufacturers continue to establish competitive advantages in brand, technology, supply chain, etc., and are expected to continue to increase market share and have broad room for growth in the future.

HBM breakthrough memory bandwidth and capacity bottlenecks, AIGC to promote the rapid growth of HBM.

HBM is mainly through the TSV technology chip stacking, breaking the memory bandwidth and capacity bottleneck, is a new generation of DRAM solutions. The AIGC wave has driven the rapid development of AI applications. The demand for AI servers and high-end GPU continues to rise, and is expected to continue to promote the rapid growth of the HBM market. TrendForce, the global HBM market is expected to reach US $3.9 billion in 2023 and US $8.9 billion in 2024, up 127 percent year on year. According to TrendForce data, the HBM market share of SK Hynix, Samsung and Micron will be about 50%, 40% and 10% respectively in 2022. HBM demand outbreak, domestic HBM supply chain enterprises are expected to fully benefit from industry trends.

investment advice. It is recommended to pay attention to memory chip manufacturers Zhaoyi Innovation (603986), Beijing Junzheng (300223), Dongxin shares (688110), memory module manufacturers Jiangbolong (301308), Demingli (001309), module supporting chip manufacturers Lanqi Technology (688008), packaging and testing manufacturers Deep Technology (000021), distributors Shannon Core Chuang (300475).

Risk Warning: Downstream demand recovery is less than expected risk, market competition increases risk, research and development progress is less than expected risk, international geopolitical conflict increases risk.