Can Chinese memory maker CXMT help relieve the memory shortage?

As the DRAM shortage continues with no end in sight, China-based ChangXing Memory Technologies (CXMT) is taking advantage of an opportunity to grow its base. Until now, CXMT has sold its products in China to lesser-known brands of memory sticks. But recently, its memory was found on a DDR5 DIMM from Corsair, a major consumer memory brand. And the company is preparing to go public, hoping to raise as much as $5 billion. CXMT is the number four memory maker in the world, behind Micron, Samsung, and SK Hynix. Its market share is believed to be somewhere around 8% of the worldwide market, with most of its customers in its native China. CXMT does not make the High Bandwidth Memory (HBM) that is in such high demand for AI accelerators these days, but it does make DDR5 memory, and that is in very short supply as well. So, buyers will take whatever they can get. On the financial side, CXMT has turned around its fortunes in recent months. Its first-quarter revenue was 50.8 billion yuan, or USD$7.5 billion, which represents a 719% increase from the same period last year. Operating profit swung from a 2.8 billion yuan (USD$390 million) loss in the first quarter of last year to a 35.4 billion yuan (USD$5 billion) gain with a 70% profit margin. CXMT expects to use its IPO funds for aggressive expansion and investment in advanced processes. Monthly wafer production is projected to increase from 100,000 wafers in early 2024 to 300,000 wafers by the end of this year. The company is also expected to invest in production lines to enter the HBM market. And in a stroke of good luck, CXMT and another memory maker, YMTC, have been removed from the Pentagon’s list of restricted suppliers and can now sell their products in the US. That means that they can not only sell to the US commercial market but also bid on US government contracts. So, can CXMT have an impact on the memory industry? Memory analyst Jim Handy of Objective Analysis says it already has. CXMT got into DDR4 in 2023 while the majors were focusing on their DDR5 ramps, and it has undercut the big three memory makers, he said. DDR4 prices got so low that the majors all phased out of DDR4 production. Then CXMT learned to make DDR5 and dropped out of DDR4 to make more DDR5. For a while, this made DDR4 prices rise higher than DDR5. “Everyone in the industry was surprised when this happened,” Handy said. “Now the majors are making 80% — give or take — gross margins on DRAM. Even a company whose cost to manufacture was twice that of its competition would make a 60% gross margin in this case, so the market is greatly favoring CXMT — for the time being,” he added. But there is risk for CXMT. DRAM is a commodity, which makes it subject to the typical glut and shortage patterns that are driven by supply and demand imbalances. “Today’s AI-driven shortage will reverse at some point. When it does, the majors will see prices drop to cost. If CXMT’s costs remain higher than everyone else’s, the company will hemorrhage money during that period,” said Handy.