Asia Memory-Bad memories fading

TMT
Memory Devices Technology
8 October 2010
abc
20-26% operating margins (higher if we consider just Samsung’s memory operations) during 2011-12,
while managing capex/sales below their respective historical averages.
It is worth stressing that the sharply higher proposed capex by vendors (which to a large extent, the
market anticipated) is not excessive, in our view. For the industry, we forecast 2010-12 capex/sales of 26-
28% for DRAM and 48-51% for NAND. This is well below 2005-08 averages of 54% and 67% for
DRAM and NAND respectively. Additional wafer capacity in 2010-12 is mostly earmarked for NAND
(21-22%/year wafer growth for NAND, 3.7-7.9%/year for DRAM) without which severe capacity
constraints could arise. Other than NAND wafer adds, capex is likely to be funnelled mostly into process
migration. Supporting our thesis, Hynix sees longer-term capex/sales at c30% or lower, plus a normalised
operating margin of 15-20% over the longer term (see Hynix – Raising target price: Confirming our
thesis, 23 April 2010).
Upside risk lurks
Enterprise computing, storage
Retail consumer demand remains uncertain, but corporate IT forges ahead. We think the enterprise server
and storage market provide substantial upside risk for leading vendors that are positioned to cater to this
high-end market. Continued corporate IT spend plus the ongoing growth of cloud computing drives
strong demand for servers. DRAM beneficiaries include Samsung and Hynix. We forecast server unit
growth of 10% y-o-y in 2011, and content/box growth of 38%. Servers account for about 10% of total
global bit demand but blended ASP is far higher for vendors, at 2.5x for a 4GB module up to 6x for a
16GB module. The server storage market also benefits from disproportionately high revenues and
margins. Key vendors include Samsung, IMFT and Hynix. Server storage could account for the
equivalent of 12-17% of our 2012 forecast global NAND revenue, and the equivalent of 20-32% of our
2013 forecast NAND global revenue.
Tablets
We forecast tablet shipments to soar to 73m units next year, accounting for a quarter of our forecast
tablets plus notebooks. We estimate that netbook and notebook sales cannibalisation will lower 2010-12e
global DRAM demand by 1%, 5% and 5%. This will be partially offset for DRAM vendors such as
Samsung and Elpida that supply low-voltage, low-power parts that could be integrated into tablets. We
expect tablets to account for 13% of global NAND demand next year (2010: 5%), mostly driven by a
massive 214% 2010/12e bit growth rate. We think Windows 7 could help drive tablet GB/system. Key
beneficiaries from tablet-related memory growth are Toshiba and Samsung.
Smartphones
Mobile handsets have also emerged as the leading usage of NAND on proliferation of smartphones. Handsets
account for 37% of our 2011 NAND bit demand forecast, growing to 42% of total NAND bit demand by 2012.
We forecast smartphone unit shipments to rise 54%, 39% and 35% during 2010-12, accounting for 35% of
total handsets shipped globally by 2012. Smartphones drive rapid mobile DRAM bit growth through unit
shipment growth and content per box. Mobile DRAM prices tend to be higher on a bit basis, as memory
vendors incorporate custom-made solutions for specific vendors. Samsung, Elpida and Hynix are leaders in
mDRAM. For NAND, we forecast GB/system for smartphones to double each year during 2011-12, driven by
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