Components | August 25, 2011
2GB contract price for 2HAug. approaches USD 10
Following 1HAug.’s downtrend, 2GB and 4GB contract price for 2HAug. fell by 12.24% and 8.51%, respectively, arriving at USD 10.75 and USD 21.50. 2GB and 4GB ASPs fell by 25.86% and 23.21% respectively from July’s figures, showing no signs of slowing down.
From the market perspective, although DRAM suppliers have continually made production cuts, the results will only begin to take effect in early 4Q, with no substantial short-term improvement to the supply situation. If the price decline continues, major PC OEMs’ strategy will be to maintain low DRAM inventory levels to prevent losses caused by price decreases. TrendForce indicates that it is highly likely that DRAM contract price will continue to fall in September, since economies are sluggish in many parts of the world and the traditional peak sales season for PCs is unlikely to manifest this year. Production Cuts Insufficient, DRAM Price Rebound Delayed TrendForce further indicates that present commodity DRAM bit output is in a state of close to 20% oversupply (based on chip number). As the global economy looks to be on the brink of a second worldwide recession and peak season demand is nowhere to be seen, PC OEMs decreased their production levels. PC annual growth has been adjusted downward to 2.5%, from 7.5% at the beginning of the year, and NB shipments have also been significantly reduced, from the originally estimated 11% to 2.1%. Additionally, PC content per box has seen almost no marked increase in 2HAug., a further blow to the DRAM market. Contract price decreased from May’s 2GB ASP of US$18.75 to the present US$11, a large decrease of 41%. The current price has already fallen below most manufacturers’ cash cost, and makers are faced with a dire situation: the more the sell, the more they lose. Thus, beginning in August Taiwanese DRAM manufacturers began leading the production cuts; Powerchip, ProMOS, and Nanya have already decreased output, while Rexchip and Inotera are eagerly discussing plans to follow suit. As for international DRAM chip makers, affected by Powerchip’s cuts, Elpida adjusted their commodity DRAM production volume. Hynix is also adjusting their production plans, with aims to reduce the proportion of commodity DRAM shipments. There has not been news of other makers, like Samsung and Micron, planning to cut production. According to TrendForce statistics, basing calculations on the current total DRAM wafer start volume (approximately 1300K), at least 20% of total capacity must be reduced in order to restore balanced supply and demand. However, taking into consideration inventory previously deposited into wafer banks and DRAM chips that have accumulated in the distribution channel, DRAM price is not likely to see the light at the end of the tunnel until 2Q12 at the earliest. Time to Consolidate and Challenge Korean Makers’ Dominance As DRAM price continues to fall and manufacturers’ losses accumulate, Samsung remains alone on top and will enter the 28nm production process in 2H11. Other international makers have just begun to adopt 30nm processes, representing a technology lag of half a year to a year and a cost gap of 20-30% compared to Samsung. Without proprietary technology, Taiwanese DRAM manufacturers must pay licensing fees to their technology providers. Furthermore, as a result of expanding their economic scale, Taiwanese makers possess nearly 40% of global DRAM capacity. Thus, if the market is stable, they profit along with their technology providers. However, once the market enters a state of oversupply or the global economy sees tumultuous change, Taiwanese makers suffer the hardest blows. Samsung is the only manufacturer still able to withstand the current setbacks; the other makers – Hynix, Elpida, Micron, Powerchip, Rexchip, Nanya, and Inotera – must consolidate or cooperate in order to withstand this downturn and face the oncoming challenges, stemming from the PC market entering maturity and slowed DRAM demand growth. TrendForce indicates that the current economic slump is a golden opportunity for the DRAM industry to make production cuts, consolidate, or consider mergers and acquisitions.
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