Competition heats up, mobile DRAM headed toward era of low profits

TAIWAN: According to DRAMeXchange, a research division of TrendForce, with the rising popularity of smartphones and tablet PCs, DRAM makers are eagerly expanding mobile DRAM capacity, which not only improves profitability but lowers risk from commodity DRAM production as well.

Smartphone shipments are forecasted at 148 million for Q2, a 48 percent YoY increase. As for hardware specifications, quad-core chips, Android 4.0 (ICS) and LTE are in the spotlight this year, further increasing smartphone market share and mobile DRAM demand.

Looking at the supply side, Korean DRAM manufacturers have a strong foothold on the mobile DRAM market. Samsung and Hynix’s combined revenue encompasses 70 percent of the mobile memory market, and the makers are expected to begin mass producing LPDDR3 in the second half of this year. The new product will be used not only in smartphones and tablet PCs, but ultrabooks as well.

Although concerns over Elpida’s bankruptcy protection filing have not yet dissipated, the Japanese maker is actively working on mobile DRAM production to increase turnover and market share. Elpida’s LPDDR3 schedule is only slightly behind that of the Korean suppliers. As for Taiwanese makers, currently there is one supplier manufacturing LPDDR2 8Gb on the 3xnm process – hopefully they will be able to grab a share of the market from the mobile memory leaders.

Taking a look at end demand, mobile phone makers like HTC, Nokia, Sony, Samsung, etc. are all introducing new flagship models this quarter. Additionally, demand for mid to entry level mobile phones is strong on the Chinese market – MTK has released its MT6575 series chip, while Qualcomm is targeting the mid to entry level market with its MSM7227A. Chinese mobile phone manufacturers are producing their own branded products to take a slice of the market, with no lack of wallet-friendly high-end models.

TrendForce indicates, 4Gb-8Gb is enough to meet memory requirements for Android 4.0 and Windows 8. In the next 6 to 9 months, even if smartphone content per box does not increase, because Q2 shipments were better than expected (an 8.8% QoQ increase), demand will show a rising trend.

As the commodity DRAM market continues to be in a state of oversupply, even if Elpida concerns have not yet been resolved, DRAM makers are gradually reallocating capacity to specialty DRAM products. As a result, DRAM contract price has risen to the current price of US$20. However, in terms of cost structure, staying profitable remains a challenge. Turning to mobile DRAM is a logical option, but with so many makers jumping on the bandwagon, Q2 mobile DRAM contract price has fallen by 10-15 percent QoQ.

Even if DRAM manufacturers continue to shrink process technology and increase yield rate to lower cost, mobile DRAM price and profitability will quickly approach that of commodity DRAM – mobile memory is inevitably headed towards an era of low profitability.Source: DRAMeXchange, Taiwan.