Strong July memory price announced: DRAMeXchange reported July and 3Qmemory price; PC and NAND prices were slightly ahead of expectation, while mobileand server DRAM prices were in line.(1) PC DRAM prices rose 5% q-o-q (versus ourforecast of 3%) while mobile DRAM prices rose 2% q-o-q due to inventory build-updemand before the IT peak season and capacity conversion to server. (2) Serverprices rose 2% m-o-m due to strong data centre demand.(3) NAND prices rose 2-7%(versus our 2% q-o-q) due to 2D capacity decrease and peak season demand.Server driven memory price hike to persist. We expect further capacity allocation toserver from mobile and PC, amid robust server demand, to continue to drive DRAMprices upward (see Broader server impact on DRAM ASP and earnings, June 28).We estimate server and PC DRAM prices rise 9% q-o-q and 4% q-o-q in 4Qe (9%q-o-q and 6% q-o-q in 3Qe), respectively. Firm server demand, coming mainly fromthe expansion of cloud services for artificial intelligence (AI) applications and CPUupgrades, is leading this change in capacity allocation. We assume server portion ofDRAM demand expands to 40% by end-2018e from 26% in 2016, as it outpaces themarket with 46% y-o-y bit demand growth (22% y-o-y for the industry in 2017).    Mobile DRAM price turning stronger in 4Qe. Mobile DRAM prices should show astronger trend in 4Q, rising 7% q-o-q, on    (1) seasonal strength in demand amid abusy period for product launches and(2) memory makers’ intentions to narrow theprice gap between server and mobile. Due to a price hike in server DRAM, the mobileDRAM price discount to server DRAM widened to 23% in July versus 3% in January,but there is no reason for this discount given continuing DRAM shortage. A recoveryin smartphone shipments in 3Q/4Q by 10%/14% q-o-q and 1%/4% y-o-y, accordingto DRAMeXchange, should also support a stronger mobile DRAM price trend in 4Q.    Reiterate Buy on memory makers and NAND equipment maker: Samsung, andHynix and Wonik IPS. Samsung and Hynix are key beneficiaries and should showsteep earnings increases on the back of such a strong price trend. With ROE rising,we view both Samsung and SK Hynix’s valuations as attractive. Samsung trades at6.6x 2018e PE and 1.2x 2018e PB with an ROE of 20%, while SK Hynix trades at1.1x 2018e PB with an ROE of 28%. With a further capex increase for 3D NAND, weexpect Wonik IPS to be another beneficiary.

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