Disagreement among buyers and vendors, 1H July NAND Flash chip contract price remains undecided

TAIWAN: According to DRAMeXchange, a research department of Trendforce, after one and a half months and rounds of negotiation, the majority of buyers and vendors have not yet reached any consensus on the NAND Flash chip contract price. Thus, as of July 18, the NAND Flash chip contract price for 1HJuly is still undecided. DRAMeXchange will postpone its update on chip contract price until the end of July, if both parties can come out with meaningful and representative price points by then.

In the recent months, the NAND Flash market has mainly been influenced by two uncertainties, which has resulted in continued weaker demand for 1HJuly:

1) Low visibility and grasp of orders for downstream customers in 3Q, there is concern that in the traditional hot season of 3Q restock demand will not meet expectations. Additionally, the majority of buyers are in no rush to purchase from suppliers, as their inventory levels are relatively high.

2) European and American economic and political issues have remained a problem for
months, bringing uncertainty to the recovery of the global economy in 2H11, which in turn will affect NAND Flash end product demand for the second half of the year.

DRAMeXchange on future of NAND Flash market
Early in 2Q11, in anticipation of raw material shortages after the Japan earthquake, there was a sharp increase in NAND Flash price. Then, the slow season set in. In addition, factors such as underperformance of tablet PC shipments, the European debt crisis, 2Q quarter-end effect and uncertainties about the recovery of the global economy all worked together to take the demand off the market. As a result, NAND Flash demand has fallen further behind supply.

Most downstream customers are currently focusing on decreasing their inventory levels and have slowed their purchases to counter the effects of the down season; since June buyers and vendors have held different opinions on the following market, resulting in a stalemate on NAND Flash chip contract price negotiations.

As the previously mentioned factors are expected to continue in 3Q11, the hot season effect will most likely not kick in until after mid-3Q11, which in turn will slightly decrease overall NAND Flash bit demand for 2011. A few major OEMs of system product customers will hopefully begin, in the middle of 3Q11, to gradually replenish the NAND Flash inventory consumed by the recent launches of new products. At that time, the NAND Flash price will likely bottom out and stabilize as demand gradually warms up.

Meanwhile DRAMeXchange believes that after months of turmoil, the economic and political impasse taking place in various countries and some regions may find some relief after mid-3Q11 via the mediation of elites from major countries, for the sake of public welfare and recovery of global economy.

Additionally, most NAND Flash suppliers will adjust their capacity expansion progress based on the actual demand in 2H11 in order to ease the oversupply situation. It is also anticipated that they will increase output portion from the new 2xnm and 2ynm process technologies to lower cost and mitigate the effects of falling prices on their profitability.

After a few months of proper NAND Flash price correction, buyers will be more willing to utilize higher NAND Flash storage capacity in their new end-application products, which will help improve and enhance bit demand consumption in the year-end hot season of 4Q11.Source: DRAMeXchange, Taiwan.