DRAM price increase to continue

This change in strategy has strengthened DRAM module prices, bringing 4GB module price to a high of US$18 for the second half of the month, a US$0.50 or nearly 3% increase over the first half of January. Average 4GB price for the entire month rose by 11.11%, a rare occurrence in the past few years due to continually weak demand on the DRAM market. In addition to the contract price rebound, TrendForce also notes more PC OEMs are turning to module makers to secure supply. The two leading Korean DRAM makers have stated they will continue to cut commodity DRAM production in the future. The third and fourth largest suppliers, Micron and Elpida, will be making product mix adjustments after their merger is complete, and Taiwanese manufacturers are gradually backing out of the DRAM industry. As a result, supply is decreasing rapidly, causing PC OEMs procurement difficulties. PC makers are showing a desire to gradually increase inventory levels, and they are turning to module makers that they have not cooperated with as much in the past. Thus, the proportion of supply from module makers is rising, with some deals closing even higher than contract prices and approaching spot prices. The highest priced transaction was conducted at US$20, a good sign for contract prices. TrendForce expects DRAM contract price will continue rising throughout the first quarter due to these supply changes. Rising PC DRAM Price to Slow PC Content Per Unit Growth As suppliers decrease commodity DRAM production, PC DRAM contract price increased over 10% in January. Both suppliers and buyers are optimistic that contract prices will continue on an uptrend, eventually exceeding the Korean DRAM makers’ fully loaded cost. Global PC DRAM prices will have a chance to surpass the US$20 mark, which will benefit DRAM makers’ profit margins. However, price increases will also suppress content per unit growth, making it unlikely that the 20% growth that has been seen in previous years will continue. According to TrendForce research, notebook content per unit will only increase from 4.1GB to 4.7GB this year, a mere 14.7% increase and the slowest growth experienced in years. With the simplified, optimized design of Windows 8, there is no need for significant content per unit increases. Furthermore, as BOM cost for mainstream notebooks has already fallen below US$500, there is little room for DRAM cost increases. Currently, average 4GB module contract price is US$17.75, which represents 3.5% of BOM cost. If prices continue to rise, reaching the US$23-25 range, DRAM will exceed 5% of BOM cost. Therefore, major PC makers are delaying content growth due to cost considerations. As a result, the content per unit growth this year may drop from the originally forecasted 14.7% to approximately 10%, at 4.5GB per unit, which will have a detrimental effect on PC DRAM consumption. TrendForce indicates that the industry is generally reserved towards PC shipments in 2013. With further shrinkage of the PC DRAM outlet due to the DRAM price rebound and suppressed content per unit growth, it is more certain than ever that DRAM suppliers will continue cutting commodity DRAM production.