Sanjay Mehrotra, chief executive of Meguiar, said that the storage chip that restrained the price rise in 2019 is at a turning point, and the storage industry will usher in a better one. So the next two fiscal quarters should start showing better results.
Mehrotra may be right. However, he may be too optimistic. The latest data on DRAM or NAND pricing do not show that a rebound is actually taking place. This only shows that the price of memory is at an unacceptable low. Let’s take a closer look at what all this means for the stock’s near-term outlook.
Since the beginning of 2018, micron and other computer memory technology manufacturers, such as Samsung and SK Hynix, have been grappling with falling memory chip prices. At that time, DRAM cost more than $6 per GB. Now, it costs less than $3.
Of course, overproduction (as opposed to demand) is the culprit. The same as NAND pricing, it is now about a quarter of the price at the beginning of 2018, thanks to the positive output of Samsung, SK Hynix and Meguiar. This is a cycle we have seen in the memory industry in the past.
Mehrotra thinks the worst is over. “We are optimistic that Meguiar’s financial position in the second quarter will be the cyclical bottom of our financial performance,” he wrote in an official comment earlier this month when he released better than expected first quarter financial results, and he expects a new wave of technology investment next year. In addition, he explained in an interview with MarketWatch, “the situation will continue to improve, gradually recover in the third quarter and continue to grow in the fourth quarter.”
It is possible, because everything is possible. However, according to the analysis of price trend or production trend or demand trend, his argument is not tenable.
In MR Mehrotra’s defence, pricing data will not necessarily improve until oversupply reverses. Demand expansion is before supply is reduced, and DRAM or NAND prices will not recover until the market realizes that higher prices can be achieved.
But if the economy is recovering, people still want to see at least modest changes to improve prices. After this year’s economic crisis, both have actually leveled off, better than worsened. In fact, however, there is no hint that it will improve. PC parts picker, a computer parts pricing website, said the current retail price of two 8 GB DRAM chips was close to $90, just after the multi-year low hit earlier this month. The trend is shallow, but the technology is still declining.
Solid state storage drives (SSDs) are still in a low state. 1 TB SSDs now cost about $160, down from nearly $300 at the beginning of last year, but still close to a multi-year low of about $150 hit in October. Like DRAM prices, NAND prices are falling technically.
Similarly, if manufacturers really look for support prices, we expect at least a small drop in total memory production. But we didn’t see it either. In fact, we see the opposite.
Dramexchange, trendforce’s memory market data website, reported that the output of 2 GB (or equivalent) memory chips in November was tied with the highest monthly output in the whole year. By the way, it is closely related to the production in October 2019, which has expanded the extensive growth of production since the beginning of 2019.
Some of the recent growth is attributed to Changxin storage, China’s new DRAM maker, which did not start production until late September. However, given China’s Global trade history, it is suggested that Changxin may have little impact on helping to maintain a healthy balance between DRAM supply and demand.
If we really end the oversupply now, memory will grow. Of course, never say never. In fact, there is no doubt that the price of both types of memory will rebound sooner or later. The question is, how long will it take and how much will it rebound? Mr lotra paints an encouraging picture, which investors welcome. However, this statement does not match the data on the current table.
For this reason, almost a year ago today, mehtrolla talked about the scale of price rebound in the second half of 2019. The second half of the year is now coming to an end, and there are still no clear signs of recovery. Things are actually getting worse. If last year’s language is wrong, or at least too early, then the latest prediction may be wrong.
The only bright spot is that Meguiar has sold more storage technologies at a cheaper price.