US-China Trade War Extends Memory Market Downturn


Jun. 10 2019, Updated 7:33 a.m. ET

Memory stocks fall in May

Memory chip stocks Western Digital (WDC) and Micron (MU) started falling in May when the United States increased its tariffs on Chinese imports and banned US firms from doing business with the world’s second largest smartphone vendor Huawei. Stocks of WDC and Micron fell 26.7% and 22.5%, respectively, in May.

In June, Donald Trump threatened to impose a 5% tariff on all Mexico imports effective June 10, but this is unlikely to impact Western Digital, as it has no operations or suppliers in the country.

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Memory market downturn

The trade war comes at a time when the memory market is in a cyclical downturn after over two years of an upturn. The memory chip suppliers are dealing with excess inventory that has pulled down memory prices. According to the DRAMeXchange report, NAND (negative AND) prices have been falling. All NAND chipmakers’ NAND ASP (average selling price) fell between 20% and 30% in the first quarter. The report expects NAND prices to continue to fall in the second quarter.

As NAND demand is sensitive to price, declining NAND prices helped most chipmakers sell more NAND bits. But supply rose faster than demand, which pulled down NAND prices, sending NAND revenue down 23.8% sequentially in the first quarter, according to DRAMeXchange.

In DRAM (dynamic random access memory), whose demand is not sensitive to price, prices and volume both fell because consumers reduced their purchases as they were busy clearing excess inventory, while memory chipmakers increased their capacity. A separate DRAMeXchange report showed that DRAM revenue fell 28.6% sequentially in the first quarter.

The memory downturn will continue through 2019 as the trade war slows overall semiconductor demand.


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