ADATA Technology, renowned in the memory module industry, has indicated a favorable view on the increasing prices of memory, especially DRAM, while adopting a cautious approach to inventory procurement. Unlike the previous year, the company will not engage in large-scale purchases due to the high cost of memory, which is currently at a peak level. ADATA's strategy focuses on inventory management principles that prioritize the enhancement of gross margins, avoiding the negative impact on profitability that could arise from excessive inventory accumulation.

As of Q2's end, ADATA's inventory value slightly decreased to 179 billion yuan from the first quarter's 197 billion yuan. The inventory weeks for both DRAM and NAND Flash remained similar during the first five months. DDR4 made up over half of the DRAM inventory, while DDR5 sales accounted for 30% of the total in Q2, maintaining a significant inventory share. Conversely, DDR3 constituted less than 10% of the inventory.

Looking ahead, ADATA expects a gradual reduction in inventory levels by Q4, albeit not significantly. The company's operational focus is on core business margin improvement, reflected in its stringent order selection and pricing control. Despite the volatility in spot market prices during Q2, ADATA chose not to reduce prices to secure orders. Additionally, the production utilization rate in Q3 has not reached full capacity.

In terms of future market strategy, ADATA has adjusted its approach by reducing NAND Flash inventory to safer levels towards the end of Q2, given the positive DRAM supply and demand trends. Currently, DRAM inventory turnover is above 16 weeks, while NAND Flash is around 12 weeks.

The company foresees an optimistic outlook for DRAM demand through the next year, as it remains a critical component in PCs, mobile phones, and servers. The demand for DRAM is expected to strengthen further with the rise of AI applications and the indispensable role of HBM (High Bandwidth Memory) required for AI servers, which will be produced using DDR5. With only three major suppliers in the market and no additional production capacity investments, supply growth is expected to be limited, leading to a potential explosion in growth next year due to the widening supply-demand gap.

The NAND market, however, presents a dichotomy. While consumer SSD applications have experienced fluctuations and downward adjustments in demand and pricing, enterprise demand continues to grow, resulting in supply shortages and moderating price increases. ADATA noted that without a demand for large-capacity storage in the consumer segment, interest may decline. In contrast, the enterprise segment, currently in the AI infrastructure setup phase, is seeing an increase in demand for AI server SSDs. However, the sustainability of this demand remains uncertain.

From a supply perspective, the NAND market includes major players like Micron, Samsung, and SK Hynix, as well as other suppliers such as Kioxia, China's Yangtze Memory, and the U.S.'s Western Digital, adding an unpredictable element to the market dynamics.

In the short term, ADATA believes that NAND Flash contract prices can be sustained until the end of the year without decline. However, the company acknowledges that the sustainability of this situation into the next year is open for discussion. Consequently, ADATA has adjusted its inventory to a more neutral level to enhance operational flexibility.