Capital spending on memory chips could plunge 20% in 2019 driven in large part by production cutbacks, industry analysts say. Memory chip makers are projected to cut out more than $10 billion of capital spending compared to last year as they try to prevent further price declines in DRAM and NAND in second half of 2019 and into 2020, market researcher IC Insights said.
In its latest forecast, IC Insight said capital spending on DRAM will decline 19% while NAND investments are set to decrease 21% in 2019. Spending on memory chip making has surged in recent years. Its total share of chip industry spending rose from about $15 billion in 2013—or 27% of overall spending—to $52 billion in 2018, pushing its share to 49%. Cutbacks in memory chip capacity are set to reduce spending to $41.6 billion in 2019, IC Insights said.
Demand for memory chips used in data centers, smartphones and other systems has declined sharply over the last year, thrusting the memory chip market into an oversupply and eroding the average selling prices (ASPs) of DRAM and NAND. Big suppliers including Micron, Samsung, SK Hynix and Toshiba have been scrambling to slash spending amid lagging demand and China's Yangtze River Storage Technology threatening to add to the global supply.
DRAM and NAND prices have seen steep declines over the last year due to the inventory glut, industry analysts say. Market researcher DRAMeXchange said in August that average DRAM prices slumped 10% in the second quarter as supply continued to outpace demand. Prices are projected to fall further in the current quarter. NAND demand has also slipped due to the trade conflict between China and the United States, which could hurt prices further in 2019.
How far memory prices fall will be determined in large part by the spending cuts made by major memory chip suppliers in 2019 and 2020. Applied Materials, the world's top vendor of chip production equipment, warned in August that memory chip spending would only start to turn around in 2020. Applied Materials said its profits plunged 40% last quarter due to the global glut of commodity memory chips, which rise and fall in price based on supply and demand.