Memory Suppliers Ramp Up Production in Response to Demand for In-House Chips from NVIDIA and CSPs

Memory suppliers are in the process of expanding their production capacity in response to escalating orders from both NVIDIA and Cloud Service Providers (CSPs), TrendForce, a leading market research firm, said. The surge in demand is primarily driven by the growing need for in-house designed chips, spurring memory suppliers to boost their production capabilities.
HBM3 to elevate HBM revenue with its superior ASPAmong the notable initiatives undertaken by these suppliers is the expansion of Through-Silicon Via (TSV) production lines, a move aimed at increasing the output of High Bandwidth Memory (HBM). These expansion efforts are set to lead to an impressive 105 percent annual increase in HBM bit supply by the year 2024.

However, it’s worth noting that the timeline for these expansions is not immediate. The process of TSV expansion involves equipment delivery, testing, and other factors, taking around 9 to 12 months to complete. As a result, the majority of the increased HBM capacity is expected to materialize by the second quarter of 2024.

Pivotal Years for AI Development and HBM Utilization

The years 2023 to 2024 are poised to be pivotal for the development of Artificial Intelligence (AI), triggering a substantial demand for AI Training chips. This, in turn, is expected to drive an increase in HBM utilization. However, as the focus shifts more toward Inference in the AI field, the annual growth rate for AI Training chips and HBM is projected to slightly taper off.

The impending boom in HBM production presents a delicate balancing act for suppliers. They must navigate between meeting the rising customer demand to expand their market share and the risk of overproduction, potentially leading to a surplus. Moreover, the possibility of overbooking also looms, as buyers, anticipating an HBM shortage, might artificially inflate their demand.

Anticipating HBM3’s Impact on Revenue

A significant development on the horizon is the advent of High Bandwidth Memory 3 (HBM3), expected to have a considerable impact on HBM revenue in 2024. This next-generation memory technology is projected to contribute significantly to the industry’s revenue due to its superior Average Selling Price (ASP) compared to previous HBM generations.

The HBM market in the year 2022 experienced a balance between supply and demand. However, the explosive surge in AI-related demand throughout 2023 prompted clients to place advance orders, putting pressure on suppliers’ capacity limits. Looking forward to 2024, TrendForce predicts a shift in the HBM sufficiency ratio from -2.4 percent to a positive 0.6 percent, reflecting the aggressive expansion undertaken by suppliers.

HBM2e to HBM3 Transition and Market Share Dynamics

The demand landscape is shifting from HBM2e to HBM3 in the year 2023, with an approximate demand ratio of 50 percent and 39 percent, respectively. As a growing number of chips incorporating HBM3 technology enter the market, the demand for HBM3 is expected to dominate in 2024, surpassing HBM2e with a projected share of 60 percent. This shift, combined with a higher ASP, is likely to contribute to a significant increase in HBM revenue in the upcoming year.

Presently, SK Hynix holds a leading position in HBM3 production, notably serving as a key supplier for NVIDIA’s server GPUs. In contrast, Samsung is focusing on fulfilling orders from other CSPs. The gap in market share between these two giants is expected to narrow significantly this year due to increased orders for Samsung from CSPs. Both SK Hynix and Samsung will collectively command around 95 percent of the HBM market between 2023 and 2024, although fluctuations in shipment performance may occur across different quarters due to their distinct customer bases. Meanwhile, Micron, with its focus on HBM3e development, may experience a slight decrease in market share over the next two years, given the ambitious expansion plans of the South Korean manufacturers.

Price Dynamics and Revenue Forecast

The Average Selling Price (ASP) of HBM products tends to gradually decrease year over year. This trend is driven by the high-profit nature of HBM, coupled with a unit price that exceeds that of other types of Dynamic Random-Access Memory (DRAM) products. To stimulate customer demand, suppliers aim to progressively reduce prices, resulting in an anticipated price decline for HBM2e and HBM2 in 2023.

While suppliers have yet to finalize their pricing strategies for 2024, TrendForce does not rule out the possibility of further price reductions for HBM2 and HBM2e products. This is particularly likely given the significant improvement in overall HBM supply and suppliers’ efforts to expand their market shares. In contrast, HBM3 prices are expected to remain consistent with those of 2023. With its notably higher ASP compared to HBM2e and HBM2, HBM3 is expected to be a significant driver of suppliers’ HBM revenue, potentially leading to a substantial 127 percent year-on-year increase in total HBM revenue, reaching an impressive $8.9 billion in 2024.