Trade war worsens memory downturn
The US-China trade war started with the two countries imposing tariffs on each other’s imports. The trade war intensified in May when the United States imposed a ban on Huawei, which prevented US firms from doing business with the Chinese firm.
Memory suppliers tackled tariffs by shifting the supply chain. However, they will take a big hit with the Huawei ban as it will directly reduce demand. US-based Micron (MU) and Western Digital (WDC) have halted shipments to Huawei. If the United States forces South Korea to abide by the ban, Samsung and SK Hynix would also lose revenue from Huawei. Moreover, the trade war has slowed end-consumer demand in smartphones, PCs, and data center markets, which indirectly affects memory chip demand.
Memory price estimates
The Huawei ban and trade war has created uncertainty around second-half growth. The DRAMeXchange revised its DRAM ASP estimates for the third quarter from a 10% decline to a 10% to 15% decline. It also revised its fourth-quarter estimates from a 2% to 5% decline to a 10% decline. The DRAMeXchange also estimates NAND (negative AND) prices to continue to fall in the second quarter.
Memory chip makers are reducing supply by cutting capacity. At the Bank of America Global Tech Conference, Lam Research stated that despite the capacity cuts, supply is growing faster than demand, and this situation is likely to continue through 2019.
Rising inventory and declining prices will pull down memory chipmakers’ gross margin. The chipmakers will be forced to write down inventory and report losses by the end of the year as the trade war worsens the memory industry downturn.
In such challenging times, Western Digital is focusing on reducing capacity, cutting costs, and maintaining cash flow to mitigate the impact of the downturn.