The Zhitong Finance App learned that with the gradual recovery of demand in the downstream mobile phone, PC, server and other industries and the gradual implementation of production capacity cuts by original storage manufacturers, starting in 3Q23, the prices of some major storage categories began to bottom and reverse into an upward channel, and the stock prices of relevant domestic and foreign manufacturers all showed signs of performance. At this point, I am still optimistic that the industry as a whole is expected to maintain an upward trend. At the same time, it is recommended to actively pay attention to the various industry segments. 1) Major types of storage benefit from the short supply of HBM, and the supply and demand pattern is expected to continue to be optimized. 2) Niche storage is expected to follow the larger class of storage into the upward channel. 3) Server inventory removal is nearing its end, and the increase in DDR5 penetration rate is beneficial to the memory interface chip circuit.

Recommended attention: leading manufacturers in the industry chain such as Lanqi Technology (688008.SH), Zhaoyi Innovation (603986.SH), and Jiang Bolong (301308.SZ).

The main views of CICC are as follows:

Cycle review: 1) According to changes in market size, it can be seen that the fluctuation cycle of memory chips is about 3 to 4 years. The main drivers of the upward cycle in history are factors such as the explosion of terminal sales, the introduction and application of new technology, and mergers, production cuts, and insufficient production capacity of fabs. Factors in the downturn of the cycle include overcapacity, the impact of the international economic situation, and weak demand. 2) The stock price is somewhat leading compared to the company's fundamentals, and the period varies from 1 to 2 quarters. 3) Niche storage is highly synchronized with major storage trends, and there is a certain degree of coincidence in terms of supply and downstream demand structures.

Memory chips: The reduction of supply-side production capacity in major storage classes has begun to bear fruit, demand-side prosperity is gradually recovering, and prices are expected to continue to rise. DDR4 is out of stock due to production capacity being squeezed by HBM and DDR5. CICC expects that the 1Q24 boom for DDR4 series products will continue; customer demand for inventory replenishment will continue to drive NAND off-season; HBM products and DDR5 multiplied by AI computing power will be in short supply, and prices will remain high. The revenue of niche storage vendors improved month-on-month, and the trend of industry recovery is already quite clear.

Storage modules: The rise in the price of upstream memory chips has led to a rise in module prices, and demand for downstream servers and other products has increased supply prices. The current rebound in memory chip prices has increased the willingness of module manufacturers to prepare products+ Taiwan and mainland module manufacturers began strategic stocking in 3Q23. CICC believes that module-side inventory is expected to be gradually released in 2024.

Memory interface chips: 1) Demand for memory interface chips has increased due to the increase in server shipments and the increase in AI server shipments. 2) Increased DDR5 penetration rate+faster child generation iteration speed. There is a strong demand for supporting memory interface chips and modules.

HBM: HBM's application mitigates the “memory wall” problem. According to SK Hynix estimates, HBM demand will grow at a CAGR rate of 109% between 2022 and 2025. Competition between SK Hynix, Samsung Electronics, and Micron Technology is heating up, and each is developing HBM3E products.

risks

AI applications fell short of expectations, and production cuts by major original manufacturers fell short of expectations.