Sourceability Insights: September 2024 Market Update

School’s back in session and the countdown to 2025 is beginning to appear on the horizon. We are already entering the tail end of 2024, and with it, getting ready to put a bow on this transitional chapter in electronic components history. After the highs and lows of the semiconductor shortage and the resulting market downturn, artificial intelligence (AI) continues to reign supreme as the primary growth driver in demand recovery.?

Thanks to AI, DRAM, and NAND flash, we have seen the most significant increases in demand over the year. High-bandwidth memory (HBM) has been in the headlines the most this year, as it has become another popular component in helping improve the performance of AI applications. Shortage-like conditions are beginning to appear for some of these parts, especially with the threat of possible restrictions on memory being considered by the United States.??

New Restrictions in Consideration by United States??

Earlier this month, stocks took a surprising tumble in Asia and for several popular original component manufacturers (OCMs). The downfall of these stocks was not due to poor market performance or a downturn in procurement trends but rather the announcement by the United States of further restrictions on advanced semiconductors.??

Bloomberg News announced that the U.S. was considering a new export restriction called the Foreign Direct Product Rule (FDPR), which would allow the U.S. government to prevent the sale of a product if it used American technology. This would have a massive impact on the semiconductor industry, considering America’s large share of chip designers. After the announcement, companies like TSMC, Samsung Electronics, SK Hynix, ASML, Tokyo Electronic, and Global X Asia Semiconductor saw slumps in their stocks due to their use of American technology or design.??

Later, Bloomberg reported that the U.S. considered using the FDPR to limit the flow of highly coveted HBM products for AI into China since Samsung and SK Hynix utilize American technologies to manufacture them. As a result of these considerations, stock prices dropped, and Chinese tech giants have been stockpiling HBM.?

Reuters reports that sources familiar with the matter state that these companies have increased their purchases of AI-capable semiconductors since the start of this year. China contributed 30% of Samsung’s 1H24 revenue by these actions. However, the recent demand for HBM from China has primarily focused on HBM2, two generations behind the latest HBM3e, as American AI companies have fully booked out the latter.?

Because of these considerations, investors have become increasingly concerned about the U.S.'s competitiveness in the semiconductor manufacturing industry.???

“It seems macro and geopolitical factors played a bigger role than fundamentals,” Kang Jin-hyeok, an analyst at Shinhan Securities in Seoul, South Korea, told Reuters.??

Allies are also concerned about the nature of these new restrictions, given that the FDPR would allow the U.S. to exert control over foreign-produced items containing American technology. The U.S. urges its allies, like the Netherlands and Japan, to impose stricter business limits. This could hurt the organizations the U.S. is trying to help.??

Applied Materials, KLA, and LAM Research have argued that “FDPR and other measures could lead to non-cooperation from allies and incentivize global firms from excluding U.S. technology from their supply chains. These rules could pose significant economic challenges and risks for the U.S., harming the same companies these rules supposedly protect.”?

Memory Products Continue to Rise??

Out of the entire electronic components industry, DRAM and NAND flash manufacturers continue to see the most demand. According to TrendForce, DRAM and NAND flash will see an increase of 75% and 77% in revenue this year, respectively—the continued demand for HBM and improved supply-demand fueling growth and turnaround in the market sector.??

DRAM is forecasted to increase by 51% and NAND flash by 29%, despite current average selling prices (ASPs) in 2025. However, by 2025 DRAM ASPs will grow by 53% in 2024 and NAND flash by 35% in 2025.?

Artificial intelligence is the primary growth driver in DRAM, mainly contributing to orders for HBM. With OCMs controlling production capacity, strategic capital expenditures, and the beginning of recovery in server demand, DRAM will see a 75% increase year-on-year (YoY) in revenue for 2024. There will be an additional 51% growth YoY in 2025. NAND flash will experience a 77% increase YoY for 2024 and a 29% increase YoY in 2025.?

As the market sector evolves in the coming quarters, investments in memory will be accelerated with the potential of upward revisions later in 2025. The growing competition between SK Hynix, Samsung Electronics, and Micron Technology in HBM3 and HBM3e will add more opportunities. Now that Samsung has passed Nvidia’s qualification tests for its HBM3 chips, all major memory players are ready to sell.??

Reuters and Korea Economic Daily report that Samsung’s HBM3 chips will begin to be used exclusively in Nvidia’s H20, which is a less advanced GPU explicitly made for the Chinese market. Should the U.S. implement new trade sanctions on China in October, H20 could fall under the expanded unverified components list and be restricted from sales. This is possibly why Chinese tech companies have been stocking up where they can over the past several months.?

Meanwhile, SK Hynix is prepared to capture 50% of the total HBM shipments with its significantly expanded HBM3e shipments. SK Hynix’s HBM3e shipments have surpassed its HMB3 shipments, accounting for over half of its total HBM shipments in 2024 and remains the current market leader. On the other hand, Micron Technology is pushing to capture 20% to 25% of the HBM market share by 2024, building a pilot production line for HBM in the U.S. and, possibly, Malaysia.??

Similarly, passive component manufacturers are eager to capitalize on AI demand now that multi-layer ceramic capacitors (MLCCs) are increasingly used in these applications.??

MLCC Manufacturers Optimistic About AI?

Over the last few months, HBM and solid-state drives (SSDs) have seen significant gains due to AI popularity. With the continued integration of AI into various industries, demand for components that can help improve efficiency and optimize power use will only grow. For example, HBM and SSDs grew in demand following the initial wave of orders for graphics processing units (GPUs) and advanced packaging.??

A new report from TrendForce reveals that MLCC manufacturers are optimistic that passive components could see the same level of demand as HBM and SSDs. According to a report by the Economic Daily News, “the AI boom has significantly increased the use of passive components, particularly in AI PCs and AI servers.”?

Murata President Norio Nakajima explains that the ongoing AI trend “is unstoppable, leading to an expansion in MLCC applications.”?

Nikkei Asia reports that Murata believes the upcoming boom for MLCCs, specifically in AI applications, will begin in the smartphone market before it extends to computers that offer edge and generative AI. More specifically, end-use devices will mostly propel MLCC consumption.?

Nakajima announced that Murata has been increasing capacity utilization at its MLCC rates, expecting it to rise from 85% to 90% this quarter. Over the past year, Murata has been on the dot with upcoming market trends in the passive components sector. Earlier this year, Murata reported that recovery for component shipments in the smartphone market would occur later this year, requiring an increase in capacity utilization ahead of time.??

As forecasted, the average MLCC usage per AI PC has surged by a reported 80% compared to traditional PCs, with usage in AI servers doubling from an average of 3,000 to 4,000 during the year. TrendForce reports that the increased use of high-speed computing environments will further contribute to the growing demand for high-capacity and high-voltage MLCCs.??

Passive OCMs Walsin Technology and Yageo have also seen a notable recovery in their operations, “marking the beginning of a bullish phase for the passive component market.”?

Yageo’s recent statement echoed Murata’s optimistic outlook, noting that more opportunities will emerge with customizable orders for specific product requirements. This will be especially true for those who need high temperature and high-current tolerance, which is typical for AI applications.

CHIPS Projects Face Delays??

Since the U.S. government announced it, the CHIPS and Science Act has garnered the U.S. over $400 billion in incentives, loans, and subsidies to kickstart the resurgence of U.S. manufacturing. Over 114 significant projects tied to the CHIPS Act have begun since its passage.?

However, these lofty ambitions have faced derailment after derailment thanks to talent shortages, worsening market conditions, slowing demand, and uncertainties in domestic policies. Today, 40% of all significant manufacturing projects associated with the CHIPS Act have been delayed or postponed indefinitely.?

Affecting companies big and small, industry sources say that the slow approval process for CHIPS Act funding and the unclear Inflation Reduction Act (IRA) rules have proven to be significant pain points for investment projects. TSMC has run into the most problems in its effort to build several facilities in Arizona, with its mass production schedule being delayed for two years. Tough competition in attracting local talent combined with cultural differences regarding work has led to labor shortages.??

Intel, who played a significant part in securing the CHIPS Act’s approval, has also paused construction at its Ohio facility due to the market’s downturn and the long delay in the delivery of U.S. subsidies. It has since been aware of a very substantial investment from the CHIPS Act, but the long wait has offset Intel’s original production plans. Many other companies invested in constructing new advanced semiconductor plants have been strained under increased financial pressure.?

Some organizations are taking these delays in a positive direction. Since Samsung Electronics has delayed its semiconductor cluster in Taylor, Texas, the chipmaker is considering upgrading its facility from 4nm process technology to 2nm to gain better positioning against rivals once construction resumes.??

To stay ahead of market changes and proactively combat challenges like part shortages, Sourceability’s global e-commerce site, Sourcengine, and market intelligence tool, Datalynq, will help engineers and procurement teams overcome any problem. To contact our sales experts to secure the stock you need or leverage Sourceability’s digital tools, reach out here.??