Manufacturers are cutting back on NAND production to increase profitability

SK Hynix and Samsung Electronics plan to reduce SSD production and refocus on more profitable DRAM. This approach will affect manufacturers' profitability and lead to shortages.

Risks of shortages and price increases

Despite experts' forecasts of sharp growth in consumption, manufacturers controlling nearly 60% of the NAND market have minimized production volumes. Thus, companies can influence shortages in this segment, potentially leading to price increases, and maximize their profitability. NAND supply growth this year is expected to be 17%, which is significantly lower than in previous years.

For example, Samsung Electronics has reduced its production of NAND wafers from 4.9 million to 4.68 million this year. SK Hynix also plans to cut production from 1.9 million units to 1.7 million this year. Companies plan to focus on the DRAM segment due to higher demand.

The situation seems rather strange, as NAND is an important element in AI. NVIDIA's recently unveiled ICMS platform has dramatically increased demand for NAND. However, the impact on the AI sector will be limited as most companies have already contracted for NAND supplies. The main consequences will affect the consumer segment - PCs, mobile devices, and servers.

In the Chinese market, the situation with NAND memory is slightly different. China's YMTC is trying to increase its market presence and is ramping up production. In response, Korean manufacturers are reducing NAND supplies for PCs and mobile devices, but at the same time increasing their share for corporate solutions.

Further price increases are simply inevitable, with analysts predicting a 38% increase in contract prices for NAND as early as the first quarter of this year.