The memory chip industry, after experiencing a period of strong growth driven by artificial intelligence (AI), is now facing a downturn once againThis shift was starkly highlighted on December 19, 2023, when Micron Technology, one of the largest U.Smemory chip manufacturers, released its financial report for the first quarter of the 2025 fiscal yearDespite strong year-on-year growth, Micron’s earnings fell short of market expectations, causing a significant drop in its stock priceBy the close of trading, Micron’s stock had plunged over 16%, wiping out nearly $19 billion in market value overnight, dropping from $115 billion to $96.7 billion.

The report, which covered the period from September 1 to November 30, 2024, showed revenues of $8.71 billion, an 84% year-on-year increaseNet income stood at $1.87 billion, meeting expectationsHowever, the company’s outlook for the second fiscal quarter was bleak, with revenue guidance of only $7.9 billion, far below analysts’ expectations of $8.9 billion

This pessimistic forecast sent shockwaves through the market, and analysts from major investment firms such as Morgan Stanley, JPMorgan, and Bank of America Merrill Lynch responded by downgrading their ratings for Micron, signaling a gloomy outlook for the memory chip industry as a whole.

The memory chip market is primarily dominated by two types of semiconductors: DRAM (Dynamic Random-Access Memory) and NAND FlashDRAM chips account for around 60% of the market, while NAND Flash comprises about 40%. The market has been struggling since the second half of 2022, when oversupply triggered a sharp decline in chip pricesThis downturn resulted in a significant profit squeeze for many memory chip manufacturers, causing a drop in stock prices and forcing companies to reevaluate their production strategies.

After enduring two consecutive years of a "cold winter" in 2022 and 2023, the market had hoped that 2024 would mark the beginning of a recovery

• Hang Seng Electronics Eyes Further 5% Stake
• Can Gold Prices Hold Support?
• A 12 Billion Setback: How Helitai's Missteps Hurt BYD
• Tesla Surges Over 27% in Just 10 Days!
• Precious Metal Frenzy Ignites Stock Prices

Early signs of this recovery were apparent in the first half of the year, but the latest developments suggest that the memory chip sector has yet to emerge from its prolonged slumpWhile Micron's data center business saw impressive growth of 400% year-on-year, driven in part by AI-related demand for high-bandwidth memory (HBM) products, this was not enough to offset the sluggish performance in the consumer electronics market, particularly in smartphones and PCsMicron's CEO, Sanjay Mehrotra, noted that while AI has boosted data center sales, the broader consumer electronics sector remains weak, and the recovery has generally been below industry expectations.

The cyclical nature of the memory chip industry, due to the unique structure of its supply and demand dynamics, has long been a subject of industry analysisIn September 2023, Morgan Stanley released a highly influential report titled "Winter is Coming," which sent shockwaves through the sector

The report highlighted the vulnerability of the memory industry to cyclical downturns, especially given the continued weakness in the smartphone and PC markets, which are two of the largest consumers of memory chipsAccording to Morgan Stanley’s analysis, the current negative trend in chip demand is likely to persist until at least 2026, creating a prolonged period of economic strain for memory chip manufacturers.

In response to these ongoing challenges, leading memory chip producers are once again considering production cuts to weather the stormThis strategy, which was first implemented in the second half of 2022, has already been adopted by major players like Samsung, Micron, and SK HynixThese three companies, which together account for over 90% of global DRAM and NAND Flash production, spearheaded efforts to reduce output in order to curb the price decline and manage excess inventory

This strategy was largely successful in stabilizing the market and halting the downward price spiral in 2023.

At the end of 2023, reports emerged that major players like Samsung and Kioxia were planning to implement another round of production cutsThis new effort is aimed at reducing supply to help drive prices higher, as the industry continues to grapple with an ongoing imbalance between supply and demand.

The memory chip industry’s struggle with supply glut and insufficient demand is expected to persist for some timeAccording to two memory channel vendors in China, there has been little sign of a significant market recovery, except for AI-related products such as HBM and DDR5 memory, which have seen noticeable price increasesHowever, other memory and flash storage products remain at low prices, with some even experiencing further declinesOver the past year, negotiations between buyers and sellers have centered around prices, with buyers still focused on reducing their inventory, resulting in lower procurement costs

On the other side, memory manufacturers are adopting a cautious approach, unwilling to sell at a loss, and thus, there is limited willingness to reduce prices significantly.

The cyclical nature of the memory chip market, characterized by periods of rapid growth followed by sharp downturns, is not a new phenomenonHowever, the current downturn is particularly pronounced due to the dual challenges of a global economic slowdown and the ongoing adjustments within the technology sector, especially in consumer electronicsThe AI-driven boom in data centers and the demand for specialized memory products like HBM have not been enough to offset the broader weakness in traditional consumer markets.

Looking ahead, the memory chip industry faces a tough road to recoveryWhile AI continues to provide some hope, the fundamental challenges of oversupply, weak demand, and cyclical fluctuations in the technology market suggest that the "winter" forecast by Morgan Stanley may continue to chill the sector for years to come