Samsung thrives on memory chips, how can Chinese manufacturers break through?

Since the second half of last year, the prices of storage products such as solid-state drives, memory sticks, and flash memory cards have been rising slowly. After the Samsung Note7 self-ignited incidents, the prices of solid-state drives and memory sticks have skyrocketed. In the fourth quarter of last year, the spot price of dynamic random access memory (DRAM) continued to rise. The recent spot average price of DDR4 4Gb memory chips has reached US$3.347, an increase of 18%, a record high in 18 months. Micron's NAND Flash 64GB MLC particles have increased by more than 25%. The price of memory on JD.com has generally increased by one-third compared to the middle of last year.

The reason why the price of memory chips continues to rise is that in addition to the tight production capacity caused by unexpected technological upgrades at large foreign manufacturers, China's memory chips are basically dependent on imports, which is also the reason for the sharp price increase of memory chips.

The memory chip market is monopolized by a few international giants

The more common memory chips are NAND Flash and DRAM. NAND Flash is a non-volatile storage technology, which means that data can be saved even after power failure. For example, the 16G/32G/64G flash memory on mobile phones and the solid-state hard disk on computers use NAND Flash. DRAM is a dynamic random access memory that can only keep data for a short time, and the data will be lost when the computer is turned off. The 4G/8G/16G memory on the computer uses DRAM.

At present, the NAND Flash market is dominated by the ToggleDDR camp jointly formed by Samsung and Toshiba and the ONFI camp led by Intel and Micron. Foreign giants such as Samsung, Toshiba, SanDisk, Micron, and SK Hynix account for more than 80% of the market share, among which Samsung is the leader with a market share of about 38%.

In the DRAM market, Samsung, SK Hynix and Micron occupy the majority of the market share. In the fourth quarter of 2016, Samsung's market share reached 47.5%, SK Hynix's market share was 27.3%, and Micron's market share was 19.4%. In comparison, the market share of Taiwanese manufacturers ranked 4-6 is relatively limited, with Nanya Technology's market share being 3.1%, and Bonptech and Powerchip Technology's market shares being 1.3% and 0.8% respectively.

It can be seen that the memory chip suppliers are firmly controlled by a few manufacturers, and there is a winner-takes-all phenomenon. This is very beneficial to international manufacturers who have an advantageous market share, but very unfavorable for those who are catching up.

Factors such as technological upgrades and new product defects have contributed to the continued rise in prices

Under the situation that the memory chip market is monopolized by foreign countries, the biggest impact is the large price fluctuations of related products. Take the price of memory sticks on JD.com as an example. In the middle of last year, the price of DDR4-2400 8GB memory was around 300 yuan, but now the price of DDR4-2400 8GB memory of many brands has exceeded 400 yuan. For example, Kingston's Fury series DDR4-2400 8GB memory is priced at 479, and Savage series DDR4 2400 8G memory is priced at 549. Kingston's DDR4-2400 16GB*2 set memory is priced as high as 1,899 yuan. Although some brands are priced a little cheaper, they are all out of stock in JD.com's self-operated stores.

Not only are the memory sticks on JD.com expensive, but even the memory prices in some major electronic product countries are rising. According to Japanese media reports, on March 25, the lowest price of DDR4-2400 16GB*2 memory kits in Akihabara, Japan was 25,704 yen (about 1,600 yuan), and basically most stores offered prices between 28,000 and 29,000 yen, which is twice as much as last summer. The price of DDR4-2400 4GB*2 memory kits also created the highest increase in the past month, with the average price rising to 7,234 yen (about 450 yuan), an increase of 15%.

The reason for this situation is largely because international manufacturers such as Samsung and Micron have had to recall new products produced after upgrading their technology due to defects.

According to media reports, after Samsung and Micron upgraded their DRAM process to 10+nm, Samsung's 18nm DRAM and Micron's 17nm DRAM both had defects. According to PC manufacturers' tests, Samsung's 18nm DRAM will cause system errors and blue screen crashes after installation. The industry estimates that Samsung had to recall a total of 100,000 DRAM modules. But even after the recall, the re-shipped products still had defects, causing the defective rate of PC manufacturers to rise.

After upgrading from 25nm to 17nm, Micron also encountered yield problems similar to Samsung's - Micron's 17nm DRAM has significant differences in design and process from 25nm DRAM, and the current yield is difficult to reach even half. For this reason, Micron also asked customers to suspend all certification procedures.

Samsung and Micron are the main suppliers of DRAM, and defects in their products have exacerbated the tight supply chain. For example, Nanya Technology's production capacity has been fully booked in the first three quarters of this year... Under this circumstance, it is a foregone conclusion that memory stick prices will continue to rise in 2017.

Samsung is the big winner in memory chip rally

Last year, although Samsung suffered huge losses due to the series of Note7 spontaneous combustion incidents, it actually made a lot of money due to the sharp price increase of parts such as memory chips and screens at the end of last year.

Samsung previously estimated that the mobile phone market was saturated and the consumer PC market did not have much demand for NAND Flash. After repeated consideration, Samsung chose to stop the expansion plan. At the same time, several major mobile phone manufacturers such as Samsung, Apple, BBK, Huawei, and Xiaomi were all competing for NAND Flash production capacity, which led to a very tight supply chain and a natural increase in NAND Flash prices. For this reason, Xiaomi, which is famous for its cost-effectiveness, had to issue an announcement stating that it had to increase the price of Redmi 4 and Redmi 4A by 100 yuan due to rising component prices.

Samsung has made a lot of money under the background of the continuous increase in NAND Flash and DRAM prices. According to the research of DRAMeXchange, the global DRAM revenue increased by about 18.2% in the fourth quarter of 2016. Considering that Samsung's market share in the DRAM market in the fourth quarter of last year was as high as 47.5%, it is not an exaggeration to call Samsung the biggest winner of the DRAM price increase.

In the fourth quarter of 2016, even though Samsung suffered huge losses due to the Note 7 incident, resulting in losses of more than 6 billion US dollars, Samsung is still getting better and better.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.