1HNov. DRAM outlook gloomy, 2GB contract price lingers at $10 threshold

TAIWAN: According to DRAMeXchange, a research division of TrendForce, DRAM contract price has been stable since October due to peak season demand. However, going into November, the Thailand flood disaster has caused concerns about HDD supply shipments.

PC OEMs were not only worried about the impact on overall shipment volume, but attempted to save on other component parts in order to prevent the recent HDD price increase from affecting total unit cost. As the DRAM oversupply situation is significant, PC OEMs’ main priority is to lower price. 2GB DRAM module contract price for 1HNov. decreased slightly, while ASP fell by 2.38 percent QoQ. Lowest ASP arrived at the $10 threshold. As for 4GB price, ASP also fell slightly, by 2.56 percent, with the lowest quote at $18.5.

From the market perspective, PC OEMs’ inventory restocking was weak in 1HNov. Trading was light as well, and concluded transaction prices were all low; the peak season demand effect has gradually dissipated. Looking at the spot market, 2Gb chip price has fallen by 9.64 percent from the start of November to today (11/15). The lowest price was $0.7, a figure lower than manufacturers’ cash costs even on the most advanced processes. Due to the current oversupply situation, it is highly likely that contract price will continue to fall. Thus, makers will continue actively reallocating capacity to non-commodity DRAM products, and the prospects for further capacity cuts cannot be ruled out.

DRAM price rebound possible in 2H12
2011 has been a year full of challenges for the DRAM industry. Aside from the temporary price rebound caused by the March 11 earthquake in Japan, weak economies worldwide have resulted in PC shipments that did not meet expectations. DRAM 4GB contract price has fallen from May’s $36.5 to the present $18.5, an over 47 percent decrease, and 2Gb chip contract price is approaching the $1 threshold.

With the severe oversupply situation, top-tier manufacturers like Samsung dominated over other makers in terms of profitability due to their superior process technology and vertical integration strategy. Presently, they are still profitable and turning in positive financial reports. On the other hand, since other DRAM makers’ process technology is not as advanced as top-tier manufacturers, as DRAM price continues to fall their top priority is to decrease cash outflow. The other options are to become a dedicated foundry or reallocate capacity to favor server or mobile DRAM, in order to survive the harsh climate of the current DRAM market.

Looking towards 2012, the DRAM industry supply will not experience the usual 40-50 percent bit growth of past years. Forecasted bit growth for 2012 is a mere 28 percent YoY, mainly due to DRAM makers with insufficient funds withdrawing from PC DRAM production. Furthermore, the development of production on advanced process technology such as 30nm and 20nm processes is becoming increasingly difficult.

From the demand perspective, negatively impacted by European and US economic instability as well as the rise of tablet PCs, PC shipment growth for 2012 will only be 6.2 percent YoY at best. If the HDD supply chain has not recovered from the Thailand flood disaster by 1Q12, PC shipments may decrease even further.

Additionally, as content per box will not increase significantly, DRAM bit demand growth will be less than 30 percent in 2012. PC DRAM bit demand will be a mere 12 percent; thus, demand will still depend on mobile and server DRAM. Without additional PC DRAM capacity cuts, the oversupply situation is not likely to improve.

The DRAM industry will face a crucial turning point in 2012; as current DRAM price quotes have fallen below DRAM makers’ cash cost, further capacity cuts are likely, which will cause the DRAM industry to head towards an oligopoly structure. Only if major industry changes occur or a portion of production is cut, will DRAM price be able to gradually recover in 2H12.