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Coronavirus outbreak could impact NAND flash prices

Memory manufacturers report no major impact to NAND flash supply, but weakening demand could exert an impact on prices, according to industry analysts.

Memory manufacturers operating in Asia have reported no major impact to supply related to the coronavirus outbreak yet, but industry analysts predict weakening demand could affect NAND flash prices.

NAND flash prices had been rising in 2020, but some analysts say the trajectory could slow and reverse as the coronavirus outbreak drives down sales of mobile phones and other devices that use the chips. Others see the demand impact as insufficient to change the upward trend in NAND flash prices. So, enterprise, hyperscale, server and storage OEM buyers are left with an uneven set of forecasts as they plot their flash product purchases.

"All bets are off on the stability of pricing later this year," said Don Jeanette, a vice president at Trendfocus.

Jeanette falls in the camp that thinks the coronavirus outbreak could drive manufacturers to lower the price of NAND flash this year, as supply outpaces demand. The price of NAND flash had soared higher than Jeanette expected in early 2020, and he said the trend appeared likely to continue until the "coronavirus effect" started.

Now Jeanette thinks the virus-related reductions in PC and mobile device sales could start to become a factor soon and free up NAND flash. Even more NAND flash could free up in the second half of the year, when major hyperscalers start to curb their "massive" first-half purchases of flash and SSDs, he said.

The Centers for Disease Control and Prevention (CDC) created this image to illustrate the ultrastructural morphology exhibited by coronaviruses. The illness caused by this virus is named coronavirus disease 2019 (COVID-19).

Jim Handy, general director and semiconductor analyst at Objective Analysis, said he always viewed the early 2020 increase in NAND flash prices as temporary. He attributed the spike primarily to inventory buildup in China, as hyperscalers and other large buyers worried that a trade war would make it difficult for them to purchase SSDs and DRAM.

"While prices have not yet fallen back down, there's every reason to expect that they will," Handy said. "There's no reason for a real shortage to develop in 2020. 2018 semiconductor capital spending was pretty huge, and that should drive overproduction all of this year. They didn't stop spending in 2019, setting the stage for a 2021 oversupply, too."

Handy predicts no price increases for NAND flash, SSDs and DRAM over the course of 2020 and 2021. He said hyperscalers, storage and server vendors, and their enterprise customers should be able to get anything they need at a reasonable price.

Forecasts vary on NAND flash prices

But opinions are not unanimous on NAND flash prices. Joe Unsworth, a research vice president at Gartner, said the roughly 1% reduction in demand will only slightly reduce the NAND flash shortage in 2020. He said Gartner still expects a shortage this year, causing NAND flash prices to rise about 10% to 15%, with SSD prices likely higher. The shortage should intensify in the second half of 2020 as the smartphone market recovers, 5G uptake ramps and SSD-based next-generation consoles debut, Unsworth said.

China-based NAND flash manufacturing represents 16.6% of the total wafer production per month, led by Samsung and Intel, according to Gartner. Startup Yangtze Memory Technologies Co. (YMTC) is still ramping up production and will account for less than 2% of that global total, Gartner said.

YMTC is based in Wuhan, the Chinese city where the new coronavirus first surfaced. YMTC employs more than 4,000, including about 2,000 engineers at R&D centers in Wuhan, Shanghai, Beijing and other locations, according to the company's website.

Given its location, YMTC had to act swiftly to safeguard employees, prevent and control the spread of the virus, and maintain production. Steps included distributing masks to employees, strengthening disinfection efforts, delaying the return of foreign employees and encouraging remote work when conditions permit, a company spokesperson said.

A mid-February YMTC statement claimed no employees in the factory area had the virus, and it had taken partition isolation control measures to avoid the introduction of external viruses. The company was actively coordinating raw material supply and logistics to ensure normal operation of the production line.

Although YMTC is running production normally, its will delay plans to increase wafer capacity, according to Greg Wong, founder and principal analyst at Forward Insights. The delay is because of a lack of foreign technical personnel needed to install equipment from manufacturers outside of China.

Some SSD suppliers see impact

Wong added that SSD suppliers with factories, third-party assemblers or source materials in Wuhan, China, are seeing an impact from the coronavirus outbreak. He said factories are running at "low utilization" because of the slow return of laborers due to virus-related restrictions. Factories might experience shortages of materials once their current inventories are depleted, Wong cautioned.

The World Health Organization's March 4 situation report noted that South Korea confirmed 516 new COVID-19 cases during the prior 24-hour period, raising the country's total to 5,328. China confirmed 120 new cases during the same timeframe. Since reporting the first case on Dec. 31, China has confirmed a total of 80,422 cases and 2,984 COVID-19-related deaths.

With operations in Asia, all six major memory manufacturers -- Intel, Kioxia, Micron, Samsung, SK Hynix and Western Digital -- stress that their primary focus is ensuring the health and safety of their employees. None has flagged any impact to business, and it's hard to tell if travel restrictions, logistics problems or any other issues are starting to have an impact on production.

NAND flash market leader Samsung has a memory production facility in Xi'an, China, and the rest are in Korea. A company spokesperson provided a brief statement yesterday: "For Samsung and its subsidiaries, there has been no impact on our market operations to date."

Memory makers provide generic updates

Intel has a "corporate-wide Pandemic Leadership Team" and maintains a web page to update communications to suppliers. The March 3 update informed them that Intel personnel cannot travel to, from or through mainland China, Hong Kong, Macau, South Korea, Japan, Singapore, Italy, Iran, Germany, Spain and France until further notice. Germany, Spain and France represented new additions to the Feb. 27 update.

On Feb. 18, an Intel spokesperson said the 3D NAND flash fabrication site in Dalian, China, was "up and fully operational," although the company might see "day-to-day issues" while processing new orders. The spokesperson said yesterday that Intel's sites in mainland China continue "are continuing to operate," although he declined to respond directly to a question about whether the Dalian fabrication site remains "fully" operational.

Kioxia said last week that its protocols call for travel only when necessary and executive management approval for travel to "level 2 or above" countries. Kioxia has flash memory facilities in Yokkaichi and Kitakami, Japan.

Micron implemented health-screening measures across global operations and introduced travel restrictions for employees and on-site suppliers. A company spokesperson said last week that Micron has seen little impact to operations, but it continues to monitor the latest developments.

Western Digital said last week that its facilities in China are "continuing to operate as usual," and the company is working with regional suppliers to mitigate any impact and disruption to customers. Like other vendors, Western Digital also has travel restrictions to China and other Asian countries.

An SK hynix spokesperson said last week, "There have been no production disruptions, and all our production facilities are in operation. We are preparing a contingency plan just in case."

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