Thinking about DRAM
ATEC has always been intrigued by DRAM (Dynamic random access memory — a type of semiconductor memory that is typically used for data or program code needed by computer processors to function) as far back as our early days as an analyst.
Fewer things are as cyclical compared to this sub-sector, nor as fast-moving. Swings in the names in the sector can be so vast in magnitude, they can bring one either pure elation or extreme depression.
So, here we are today. The narrative on the street is that the industry had extrapolated the strong demand (PCs, laptops, smartphones, servers and so on) since the onset of COVID and now, inventories are some six to eight weeks long at end-customers.
Even though the likes of Samsung and Hynix are not really ramping supply much and spot pricing has declined some, customers are reluctant to take on new inventory, fearing what impact the Delta variant (and perhaps slower growth in general) might have on demand.
That said, and using Hynix as a poster-child for the sector, we have seen the stock go ahead and price in the downturn since peaking in March this year, even before contract or spot DRAM pricing really started to show weakness. It has given back some 62% of its entire move up to September 2020.
According to ATEC’s framework, perhaps it could meander a bit longer, but we believe most of the selling is done, and the decline is now very mature (see our Elliot Wave count below).
Sure, we have yet to see our buy trigger, but we will definitely not be short here.
To be fair, a quick check with contacts who deal in the physical memory market has not yet signalled a return of buying interest as of now. That is to be expected since a bit of time is needed for inventory to be digested.
However, this is when ATEC will start to look ahead. We remind ourselves that the rise of the Internet of Things and Smart Cities, in general, will underpin the demand for memory (and semiconductors in general). Even though we had seen many hyper-scale data centres already built, we are really only on the cusp of edge intelligence.
Cyclicality aside, we think this theme has some longevity yet. What better way to encourage new demand than lower prices?
We watch and wait for our trigger.
