May 2020- As a result of the “lockdowns” taking place around the world, the use of remote communication has risen dramatically. One example of this is the video conferencing app Zoom which has skyrocketed to 300 million daily users from 10 million in December. Meanwhile, Microsoft is reporting a massive uptick in the use of its Teams application — with 44 million people using it as of end of March, up 12 million from the week before while Facebook has started its own free video chat feature called Messenger Rooms.
Usage of the internet generally has risen steeply during this time not only through conferencing apps but also through video streaming services, gaming, online learning, online shopping and other kinds of internet related services. People are depending on the internet to do their jobs, to go to school and to meet their friends. And with theatres, cinemas, and restaurants closed it has become the prime source for entertainment.
Greater use of internet connections as well as more people working from home also translates to greater utilisation of private and public cloud services. One driving force behind the increasing demand for cloud services in recent years were the declining costs for those services as competition heated up. According to Gartner, a research firm businesses spent $230billion globally on the cloud in 2019. While prices seem to have stabilised cloud migration is now being accelerated even further by the current crisis as companies consider a more remote-friendly future.
That means cloud computing and data centre providers need to increase their capacity to handle the higher work load. To make sure they meet demand, data centre giants like Equinix, are rushing out upgrades as quickly as possible. That, in turn, means that suppliers of equipment must step up to meet the challenge. With data centres investing in more servers and storage systems more DRAM and NAND memory chips are needed.
DRAM and NAND had a tough year 2019. According to Gartner Inc. the worldwide memory market, which accounted for 26.7% of semiconductor sales in 2019, experienced a 31.5% decline in revenue in 2019, Within memory, DRAM revenue declined 37.5% due to an oversupply that started at the end of 2018 and lasted throughout 2019 and due to weakness in the smartphone market while NAND flash experienced a milder 2019 downturn than the overall memory market, with a revenue decline of 23.1%. While experts foresaw a much better 2020 for the semiconductor market not all are as positive in their outlook now.
They see problems on the supply side with possible disruptions in the supply chain and on the demand side as the demand for PCs, mobile phones and automobiles is likely to decline due to weakened consumer demand as we are entering a recession. In my opinion while this impact on the demand side could be significant it will be short lived, and we will see a return to steady growth in in the coming year. In fact, some of this future spending is happening now as employers are fitting out employees with notebooks to work from home.
In view of the increased internet usage due to the Covid-19 crisis the market for memory semiconductors in 2020 will be driven by servers as well as wired communications through more video conferencing, streaming and gaming as mentioned above. The Q1 earnings reports of leading semiconductor manufacturer such as Intel, Micron and Samsung seem to confirm this trend.
Furthermore with the rollout of 5G mobile phone services there will be higher-speed interfaces and more storage requirements. In addition the high usage video games are getting bigger and bigger in size driven by more sophisticated audio, video and complex textures requiring greater capacity in gaming devices. Finally, as cars use more and more electronic functions to provide greater safety, greater efficiency, driver assist capabilities, entertainment etc -not to mention driverless cars-, this will continue to be another growing demand source for memory and storage. Furthermore, prices for memory chips have already risen from recent lows and likely will continue to do so.
Finally, I do believe that the Covid-19 crisis will accelerate the changes in our communications behaviour that were already taking place before the crisis. We will not go back to life as it was. People will continue to have more meetings online. People will continue to work from home at least part of the time. The lockdowns have shown that working from home can be done efficiently. This offers companies an opportunity to reduce fixed costs by reducing office sizes. And it might lead to a budgetary shift from rent to IT and a growing adoption of cloud-based solutions. Either way this development should contribute to a continued increase in demand for memory and storage as the Covid-19 crisis winds down.