Asia Memory-Bad memories fading

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TMT <strong>Memory</strong> Devices Technology 8 October 2010 abc Supply drivers – NAND 2010-11e supply-demand profile remains benign, as makers restrain wafer capacity to maximise profitability, demand soars Process migration, multi-bits drive bit growth, lowering costs, product competitiveness; leaders moving rapidly to 2xnm Capex set to rise 178% and 25% y-o-y in 2010-11e; additional supply from newcomers limited Summary NAND remains an exciting structural growth area, driven by an explosion in applications of the robust, lower power storage memory. We expect demand to continue outstripping supply for the most part of next year. We estimate supplydemand sufficiency for 2010 to be c99.5%, compared to last year’s 100.4%. We forecast 2010/12e CAGR for revenue of 24%, driven by 100% bit supply growth, offset by a c38% fall in ASP during this period. We forecast NAND industry revenue to reach cUSD24.8bn by 2012e, more than doubling from last year’s estimated cUSD12bn. We expect ASP to decline c38% next year, after falling c20% this year as supply starts increasing especially in 2H11. Indeed, contact NAND prices have held up well since the start of 4Q09 for the higher capacities of 32-64GB, though they did play catch up with the lower densities in 3Q10, falling c14-16% q-o-q. NAND ASP (contract) 20 15 10 5 0 Source: DRAMeXchange Jan- 07 Jul- 07 Jan- 08 Jul- 08 Jan- 09 Jul- 09 Jan- 10 16Gb (2Gbx 8) MLC Flash Spot 16Gb (2Gbx 8) MLC Flash Contract Jul- 10 Driving bit supply is new wafer capacity and continued process migration. New wafer capacity add accelerates, mostly impacting starting 2H11. This year, we estimate wafer capacity to increase c14% y-o-y, after falling about 5% last year. Next year, we forecast c20% increase in wafer capacity, led by Toshiba and Samsung. Process migration and multi-level 47
TMT <strong>Memory</strong> Devices Technology 8 October 2010 abc Margins benefit. Cost reductions from process migration, multi-bits outpace ASP declines. We expect cost leaders, namely Toshiba and Samsung to benefit from aggressive cost reductions. So despite falling ASP, we expect margins to expand. NAND revenue, supply bit growth and ASP trends 50,000 8.0 40,000 6.0 30,000 4.0 20,000 10,000 2.0 - - 2008 2009 2010f 2011f 2012f Supply (GB, m) Rev enue (USD mn) ASP (USD, 16Gb equ.) Source: Gartner, HSBC forecasts For example, we estimate Samsung would achieve operating margin of almost 24% this year. Toshiba’s 1QFY11 operation margin from its memory business was 15%, and the company expects it to rise to achieve c15-20% for 2QFY11 (end-September 2011). Similarly, SanDisk expects cost reductions/GB to be
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