DRAM Headwinds And Geopolitical Risks Will Constrain Outlook

Key Takeaways

• Technology lag and limited access to advanced memory markets constrain profitability, while industry shifts toward integrated solutions threaten core business relevance.
  
• Regulatory pressures, geopolitical risks, and scale disadvantages increase operational volatility, challenging long-term growth and margin sustainability.
  
• Advancements in AI-driven DRAM demand, flexible production, legacy product diversification, and ongoing R&D investments are positioning Nanya Technology for stable growth and improved profitability.

Catalysts

Research, develops, manufactures, and sells semiconductor products in Taiwan, Japan, Malaysia, China, the United States, Thailand, Germany, Singapore, Poland and internationally.

• Proliferation of energy efficiency standards and global decarbonization policies could accelerate a shift away from traditional DRAM products, forcing Nanya Technology to invest far more aggressively in R&D to avoid technological obsolescence, likely inflating costs and dragging on long-term margins and earnings power.
  
• Persistent technology lag behind leading DRAM manufacturers means Nanya may be increasingly shut out of higher-margin, advanced memory segments like HBM and DDR5, which limits any future improvements to gross margin and caps revenue growth as industry ASPs shift toward next-generation products.
  
• Mounting geopolitical instability and tightening trade restrictions, particularly involving the US, China, and Taiwan, expose Nanya to abrupt supply chain disruptions and regulatory hurdles, which could drive greater volatility in sales and operational costs, diminishing earnings visibility and reducing investor confidence in future profit streams.
  
• Ongoing transition from standalone DRAM toward integrated memory solutions in advanced system-on-chips is reducing overall demand for discrete DRAM components, risking structural declines in Nanya's core addressable market and causing a prolonged headwind to topline growth and product relevance.
  
• As rising environmental, social, and governance compliance burdens and capital intensity weigh more heavily on smaller producers, Nanya's scale disadvantage will likely squeeze operating margins and impair its capacity to reinvest, making sustained net income recovery and competitive reinvigoration increasingly unlikely.

Nanya Technology Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Nanya Technology compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Nanya Technology's revenue will grow by 29.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -28.1% today to 18.6% in 3 years time.
• The bearish analysts expect earnings to reach NT$13.2 billion (and earnings per share of NT$3.9) by about August 2028, up from NT$-9.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 9.5x on those 2028 earnings, up from -14.9x today. This future PE is lower than the current PE for the TW Semiconductor industry at 25.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.23%, as per the Simply Wall St company report.

Nanya Technology Future Earnings Per Share Growth

Risks

• The proliferation of AI, IoT, edge computing, and cloud infrastructure is supporting a structural upcycle in DRAM demand, as Nanya sees non-AI bit shipments stabilizing and AI-related DRAM (e.g., DDR5, HBM) continuing to gain adoption, which could drive sustained revenue growth and mitigate earnings volatility.
  
• Nanya is ramping up production on advanced 1B nanometer nodes flexible for both DDR4 and DDR5, aiming for over 30% of output by year-end and roughly even bit production share by Q4, enabling the company to improve cost competitiveness and support higher gross margins as scale and process maturity advance.
  
• The company retains supply relationships for legacy DRAM (DDR3, DDR4) across diverse end-markets and adapts capacity between product generations, which, combined with growing demand from consumer and industrial applications, creates diversified revenue streams and could underpin more stable long-term earnings.
  
• Industry-wide transitions from DDR4 to DDR5 historically occur gradually without causing collapse in older product pricing or demand, and Nanya is positioned to flexibly allocate production based on customer needs, helping preserve ASPs and defend net margins through technology migration periods.
  
• Nanya's ongoing investment in R&D-including verification of 3D IC and TSV/wafer-to-wafer bonding-supports next-generation product launches and addresses high-density, high-performance DRAM demand in the AI era, which could improve both top-line growth and net earnings as adoption scales longer-term.

Valuation

• The assumed bearish price target for Nanya Technology is NT$30.2, which represents two standard deviations below the consensus price target of NT$53.15. This valuation is based on what can be assumed as the expectations of Nanya Technology's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NT$75.0, and the most bearish reporting a price target of just NT$28.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be NT$71.0 billion, earnings will come to NT$13.2 billion, and it would be trading on a PE ratio of 9.5x, assuming you use a discount rate of 10.2%.
• Given the current share price of NT$43.95, the bearish analyst price target of NT$30.2 is 45.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.