YMTC Could Abandon Market for 3D NAND Flash by 2024

Analyst firm TrendForce Corp. states that Chinese memory manufacturer YMTC is now at risk of exiting the market for 3D NAND Flash products by 2024 following its formal placement on the Entity List of the US Commerce Department on December 15.

From this point forward, the Commerce Department will be reviewing and approving individual transactions related to the exportation, re-exportation, and sales of equipment, technologies, and other related goods from the US to YMTC. With acquisitions of equipment parts and technical support from its US partners becoming very difficult and prolonged, YMTC is going to be severely constrained from raising its bit output. Hence, its foothold on the market for 3D NAND Flash products is expected to weaken as time goes by.

Without the support of the key equipment providers, YMTC is now facing a huge technical obstacle in the development of its latest 3D NAND flash technology known as Xtacking 3.0. In particular, raising yield rate for the 128L and 232L processes is going to be extremely challenging for the Chinese memory manufacturer. Taking account of this latest escalation in the US-China trade dispute, TrendForce has further corrected down its projections on YMTC’s supply bit growth rate and the total NAND flash supply bit growth rate for next year. YMTC supply bits were initially forecasted to grow by 60% Y/Y for 2023. However, there was a massive downward correction that put its growth rate at just 18%. Now, YMTC is forecasted to post a Y/Y decline of 7%, which is a complete reversal from the earlier projections.

International Clients Are Gradually Reallocating Orders to Other NAND Flash Suppliers
Besides the impact of the Entity List on YMTC’s output growth, NAND flash buyers outside of China now harbor significant reservations about adopting YMTC’s technology. A US-based smartphone brand has hold off on procuring mobile storage solutions from YMTC. At the same time, PC OEMs that were previously going to qualify YMTC’s client SSDs have temporarily halted the customer sampling and adoption process. Based on the latest investigation, YMTC will likely be limited to operating only within Mainland China in the future. Moreover, since the Chinese memory manufacturer is being seriously hindered in its efforts to advance towards higher-layer 3D NAND technologies, it will eventually lose out on opportunities to gain more market share via capacity expansion activities.

After its placement on the Entity List, YMTC could be further prevented from acquiring the critical equipment if the US government opts to broaden the scope of its export control rules. For instance, there is a likelihood that Dutch and Japanese equipment providers will join the US sanction regime and stop selling DUV immersion lithography systems to Chinese customers.

By 2024, YMTC’s competitors will have transitioned to the 2XX-L generation for their primary 3D NAND processes. They might even start manufacturing NAND flash products that have a layer count that is approaching the 300 threshold. Conversely, YMTC will have gradually lost its cost competitiveness due to technological stagnation, and the erosion of its market share will continue. To avoid this fate, it will have to find ways to get delisted. TrendForce is also not ruling out other alternative paths for YMTC as well. For instance, the company can go back to manufacturing 2D NAND flash, or it can transform into a supplier for logic ICs that are made with mature process technologies.

Supply-Demand Dynamics of NAND Flash Market Now Expected to Improve in 2H23 and Thereby Help Stabilize Overall NAND Flash ASP
Since YMTC’s Y/Y supply bit growth rate for 2023 has been drastically revised to negative 7%, the Y/Y growth rate of the total NAND flash supply bits in the same year has been lowered as well to 20.2%. Correspondingly, the sufficiency ratio of the whole NAND flash market for the entire 2023 has been revised to 2.3% from the original projection of 3.6%.

Besides the moderation in supply bit growth, the analyst firm is also optimistic that procurements will pick up for enterprise SSDs thanks to the price elasticity of demand.

Moreover, it is not ruling out the possibility that the overall NAND flash supply will start to tighten in 2H23. Electronics brands (OEMs) could begin ramping up NAND flash procurements ahead of time in 2Q23. The rising demand, in turn, could lead to a stabilization of NAND flash prices during 2Q23 and an eventual rebound in the overall NAND flash ASP starting in 3Q23.