Improving Legacy-Memory Supply-Demand Conditions Persist; Lack of LTAs May Not Weaken Pricing Power

Overview

The report focuses on the Greater China legacy-memory market and argues that the divergence between legacy memory and mainstream memory trends will persist. Although the market is concerned that customers' failure to sign fixed-price long-term agreements could weaken the durability of the cycle, the report concludes that spot and short-term pricing conditions may instead allow suppliers to benefit from rapidly rising prices.

Core views

Expanding DDR4 demand and contracting supply, together with persistent shortages in SLC NAND and NOR Flash, are the core drivers of the current legacy-memory upcycle. Higher pricing will materially improve revenue, gross margin, and earnings expectations for Winbond, Macronix, GigaDevice, and PSMC. At the same time, rising memory-industry volatility is reflected through higher equity risk premiums or lower valuation multiples.

Analysis framework

The analysis centers on supply and demand, ASPs, capacity allocation, end-market demand, and revisions to company earnings forecasts, combined with scenario-based valuation to assess stock-level risk-reward. Winbond, PSMC, and Macronix are valued on P/B, while GigaDevice is valued using a residual income model.

Methodology notes

• Valuation methodsPrice-to-Book Valuation

  P/B

  Used for Greater China memory IDMs and foundry companies with relatively volatile earnings, deriving target prices from forecast book value per share and target P/B multiples.

• Valuation methodsResidual income model

  Residual Income Model

  Used to assess GigaDevice's long-term value, with key assumptions including cost of equity, medium-term growth rate, perpetual growth rate, and payout ratio.

• Industry AnalysisSupply-Demand and ASP Analysis

  Supply-demand gap and price pass-through

  Assesses pricing cycles and their impact on revenue and gross margin through product supply, demand, capacity allocation, and ASP changes.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Winbond Electronics Corp (2344.TW)

  Beneficiary of rising DDR4, NOR Flash, and SLC NAND prices

  Strengths

  Covers multiple legacy-memory product categories and has long-term opportunities related to SiCap/CUBE.

  Weaknesses

  The logic business may face headwinds, and valuation is sensitive to memory-cycle volatility.

  Comparison

  2026–2028 EPS was raised by 17%, 30%, and 34%, respectively; target price maintained at NT$288.

  Risks

  Weaker NOR or DRAM prices, renewed market oversupply, or weaker-than-expected SLC NAND development.

• GigaDevice Semiconductor Beijing Inc (603986.SS)

  Beneficiary of rising NOR Flash, MCU localization, and specialty DRAM

  Strengths

  Growing China MCU share, localization opportunities in automotive MCUs, rising NOR prices, and potential CXMT platform collaboration.

  Weaknesses

  Valuation is affected by higher industry volatility and the competitive environment.

  Comparison

  2026–2028 EPS was raised by 108%, 49%, and 48%, respectively; target price lowered from Rmb888 to Rmb750.

  Risks

  Falling NOR/SLC NAND prices, intensified MCU competition, or delays in advancing the DRAM business.

• Powerchip Semiconductor Manufacturing Co (6770.TW)

  Beneficiary of mature-node, specialty DRAM, and 3D AI foundry businesses

  Strengths

  Benefits from improving pricing and utilization, Micron collaboration, and expansion of the 3D AI foundry business.

  Weaknesses

  Uncertainty remains around the mature-node cycle and revenue ramp-up of new businesses.

  Comparison

  2026–2028 EPS was raised by 18%, 17%, and 13%, respectively; target price maintained at NT$111.

  Risks

  Weaker consumer-electronics demand, prolonged inventory digestion, intensified competition, or faster-than-expected price erosion.

• Macronix International Co Ltd (2337.TW)

  Beneficiary of rising SLC/MLC NAND and NOR Flash prices

  Strengths

  High earnings leverage to rising legacy-Flash pricing.

  Weaknesses

  Risk-reward is more skewed toward the bear-case scenario, while valuation multiples have been lowered due to increased volatility.

  Comparison

  2026–2028 EPS was raised by 139%, 144%, and 147%, respectively; target price maintained at NT$220.

  Risks

  Declines in SLC/MLC NAND or NOR prices, recovery in industry supply, or margins below expectations.

Key data

• DDR4 Price OutlookExpected to rise by about 50% in 3Q26, followed by continued double-digit gains in 4Q26Leading suppliers are exiting DDR4 supply, while consumer demand is increasing.
• SLC NAND Price OutlookExpected to rise by more than 50% in both 3Q26 and 4Q26Capacity constraints and suppliers' reluctance to allocate wafer capacity to legacy products; tightness may persist into 2027.
• NOR Flash Price OutlookMay rise by 30%–40% in 3Q26, with increases potentially continuing in 4Q26Supported by demand from industrial, automotive, networking, edge AI, and AI servers.
• Winbond EPS RevisionRaised by 17%, 30%, and 34% for 2026–2028, respectivelyTarget price maintained at NT$288.
• GigaDevice EPS RevisionRaised by 108%, 49%, and 48% for 2026–2028, respectivelyTarget price lowered from Rmb888 to Rmb750.
• PSMC EPS RevisionRaised by 18%, 17%, and 13% for 2026–2028, respectivelyTarget price maintained at NT$111.
• Macronix EPS RevisionRaised by 139%, 144%, and 147% for 2026–2028, respectivelyTarget price maintained at NT$220, while the bear-case value was lowered to NT$100.

Impact & implications

The report maintains a positive view on the legacy-memory value chain: ASP gains amid tight supply are expected to generate stronger-than-expected earnings leverage, and the absence of fixed-price LTAs is not necessarily unfavorable to suppliers. Stock selection should also consider product mix, price pass-through, capacity utilization, and valuation sensitivity to industry volatility.

Risks

• Legacy-memory price gains fall short of expectations or reverse early by the end of 2026.
• DDR4, NOR Flash, or SLC NAND supply increases, returning the industry to oversupply.
• Weak consumer-electronics demand and prolonged channel inventory digestion.
• Intensifying competition in China and overseas, pressuring product prices and market share.
• Greater memory-industry volatility, pressuring valuation multiples and target prices.
• Slower-than-expected development of new businesses such as specialty DRAM, MCUs, 3D AI foundry, and CUBE.

What to watch

• Actual DDR4 pricing and supply-demand gaps in 4Q26.
• SLC NAND capacity allocation, MLC-to-SLC migration, and the degree of supply tightness in 2027.
• NOR Flash demand strength in industrial, automotive, networking, edge AI, and AI servers.
• Quarterly changes in each company's ASPs, gross margins, inventories, and capacity utilization.
• The pace at which leading memory manufacturers cut production of or exit DDR4 and other legacy products.
• GigaDevice's MCU share, CXMT collaboration, and DRAM business progress.
• PSMC's 3D AI foundry revenue ramp-up and mature-node cycle.