CITIC SEC: 4F technology is still in the early validation stage; take a rational view of this memory cycle.

CITIC SEC released a research report stating that global memory chip stock prices have recently experienced increased volatility, with performance since October significantly weaker than other sectors. In addition to macroeconomic disturbances (fluctuating oil prices, re-emerging inflation and interest rate expectations), the industry has also become more focused on CXMT Corporation's 4F technology progress. The main reason is market concern that: if Chinese domestic wafer fabs achieve an effective technological breakthrough in the high-gross-margin server DDR5 market, the narrative logic of overseas giants maintaining super-high pricing power through monopoly capacity would be shaken. From an industry progress perspective, DRAM technology is still predominantly based on the 6F cell structure, and the implementation of 4F technology depends on the progress of Samsung Electronics and CXMT Corporation. Currently, 4F technology is still in the early validation stage, and subsequent observations are needed regarding the company's yield, output, gross margin, downstream customer certification, and other indicators in this area. The impact on the short-to-medium-term memory industry is relatively limited. It is recommended to pay attention to investment opportunities in companies within the HDD, DRAM, and NAND sectors. CITIC SEC's main viewpoints are as follows: Memory market volatility has increased, and the market is concerned about 4F DRAM progress. 1) Global memory chip stock prices have recently experienced increased volatility, with performance since October significantly weaker than other sectors. In addition to macroeconomic disturbances (fluctuating oil prices, re-emerging inflation and interest rate expectations), the industry has also become more focused on CXMT's 4F technology progress. 2) On October 10, at the 4th Integrated Chips and Chiplets Conference, CXMT Corporation announced key progress in 4F DRAM architecture R&D, and is expected to launch a new generation DDR5 RDIMM product integrating 4F architecture + hybrid bonding technology by the end of 2026. The market is concerned that the global DRAM competitive landscape may change. 4F DRAM progress: More a matter of industry chain companies weighing decisions regarding EUV resources, costs, etc. 1) Currently, DRAM is still predominantly based on the 6F cell structure. Korean and American companies Samsung Electronics, SK Hynix, and Micron continue to use this architecture for their 1a/1b (10nm-class) nodes, relying on EUV lithography and high-aspect-ratio capacitor processes to continuously shrink and increase bit density. Although these companies are advancing R&D on 4F and 3D DRAM routes, 6F remains the current mainstream for mass production. 2) Regarding 4F technology progress, the industry players advancing faster are Samsung Electronics and CXMT Corporation. According to Korean media The Elec, Samsung produced the world's first working 4F+VCT bare die using a 10a process tape-out in March 2026, with plans for quality testing in 2027 and mass production in 2028. CXMT Corporation announced key progress in 4F DRAM architecture R&D at the 4th Integrated Chips and Chiplets Conference, and is expected to launch a product integrating 4F architecture by the end of 2026. 3) When different manufacturers choose technology commercialization paths, they mainly consider EUV accessibility, comprehensive cost considerations, etc. a) Currently, American & Korean manufacturers can still continuously obtain returns through EUV, mature 6F platforms, and product structure optimization. The bank estimates that if they were to switch to 4F technology on a large scale at this stage, they would need to bear the opportunity costs of mask, process, materials, equipment, and customer re-validation. b) For Chinese manufacturers that cannot obtain EUV, switching to 4F technology and leveraging subsequent engineering optimizations in etching, deposition, materials, and integration can enable them to produce better products. Do not be too pessimistic or too optimistic; take an objective view of this memory cycle. Currently, after CXMT Corporation announced its 4F technology commercialization plan, the market, in addition to worrying about memory prices peaking, has gradually begun to worry about the impact of Chinese manufacturers' technological breakthroughs on the long-term profitability of American and Chinese companies. However, the bank believes that in the short term, all indicators point to memory still being in a state of supply shortage, with prices still in an upward channel. In addition, regarding CXMT Corporation's 4F technology progress, subsequent observations are still needed regarding the company's yield, output, gross margin, downstream customer certification, and other indicators in this area. In the short-to-medium term, do not be too pessimistic or too optimistic. Risk factors: Risks arising from weakening macroeconomic trends; risks of downstream model capability evolution falling short of expectations; risks of computing power construction and supply falling short of expectations; risks of terminal application commercialization falling short of expectations; risks of memory chip and other hardware price inflation exceeding expectations; risks of intensified industry competition; risks of insufficient bond market capacity and negative stock-bond transmission; risks of policy and AI regulatory uncertainty, etc. Investment strategy: Recently, US memory stocks have experienced significant volatility. The bank believes this is not due to weak current-period performance, but mainly market concerns about: 1) product price increase growth peaking; 2) after CXMT Corporation announced its 4F technology progress, market concerns about the impact of Chinese manufacturers' technological breakthroughs on the long-term profitability of American and Chinese companies. Focusing on company fundamentals, the bank believes memory products are still in an upward price increase cycle. In addition, with the development of AI technology and increased procurement by data center enterprises, the revenue share of memory used in data centers is steadily rising, demonstrating the high prosperity of AI. Looking ahead, the bank believes: although the magnitude of memory product price increases is slowing, considering that the memory market is expected to remain in a supply shortage state over the next 1-2 years, this is expected to support improvements in company gross margins and profitability. With the implementation of long-term agreements by memory companies, major memory manufacturers are securing capacity through 35 year LTA cooperation models, thereby locking in demand from major customers in advance. At the same time, through flexible pricing mechanisms in LTAs, with some companies setting price floors, this will form strong support for company profitability in the future, and is expected to reduce company earnings volatility, thereby raising company valuation levels. It is recommended to pay attention to investment opportunities in sub-sectors such as HDD, DRAM, and NAND.