A continuing DRAM supply glut resulted in price declines of nearly 10 percent in October for average DRAM contract prices, reported DRAMeXchange, a division of TrendForce. The market researcher’s latest DRAM price report finds the average contract price of DDR3 4GB modules dropped from $18.50 in September to $16.75 in October with the lowest contract price reported at $16.50.
A few factors are contributing to the lower average selling prices (ASPs). First, DRAMeXchange expects fourth quarter notebook shipments to shrink by one percent, and the lower demand will result in excess DRAM inventory for PC OEMs. Secondly, DRAM manufacturers are now manufacturing on advanced 20/21 processes, which is increasing overall DRAM supply.
Earlier this year, SEMI released its wafer fab report, which noted that most companies are at the 21/20 nm mode with many leaders at 15 nm. SEMI believes as new technologies emerge, such as non-volatile memories, they will replace conventional DRAM.
“The decline of DDR3 4GB module’s average contract price has exceeded 50 percent this year from $29.50 to the current $16.75,” according to Avril Wu, assistant vice president of DRAMeXchange, a division of TrendForce.
Wu expects contract prices of DDR3 4GB modules to continue to fall as the global economy remains sluggish until the middle of 2016.
“Rather than scaling back their production, top DRAM suppliers Samsung and SK Hynix will expand their capacity to head off China’s efforts to create a formidable “Red Supply Chain” for its memory industry,” stated Wu. “Though increasing capacity will result in short-term price fluctuations and even declining profits, this action is necessary to retain market shares and raise the competitive barriers against potential rivals.”
DRAM leaders, Samsung, SK Hynix and Micron, “have become increasingly worried by China’s determination to build its own semiconductor sector because the cornerstone of this project is the formation of a domestic DRAM industry,” added Wu. “The policy imperative of the Chinese government are seen in a series of events – from Tsinghua Unigroup’s offers to Micron, formation of XMC to Powerchip and UMC’s respective constructions of new fabs in Hefei and Xiamen.”
In response leading South Korean DRAM players are expected to continue their capacity expansion, and try to widen the technology gap between them and China’s domestic DRAM market.
Samsung’s strategy is to increase its Line 17 fab’s capacity from 40,000 to 50,000 wafer starts per month. “The global DRAM leader will also widen the technological gap between it and its competitors by migrating to the 18-nm manufacturing ahead of schedule and will be producing on this advanced process as early as 2016,” Wu stated.
Similarly, SK Hynix expects its M14 fab to increase from 15,000 to 70,000 wafer starts per month. “SK Hynix will thus be able to maintain its overall capacity level for next year even as its older fabs undergo technology migration and lose some capacity in the process. In terms of production technology, SK Hynix’s 21-nm process will be formally entering production in this fourth quarter.”
Wu believes at least 50 percent of SK Hynix’s total capacity will based on its 21-nm technology by the middle of 2016. “SK Hynix is also developing the 18nm technology, which is scheduled for testing at the end of next year.”
However, Micron appears to be “distracted by the departures of personnel at the senior management level,” and “its R&D unit in Japan is losing talent due to turnovers and raids from competitors,” added Wu.
She believes this distraction will have a significant impact on Micron’s plans to advance towards 20-nm manufacturing and to develop the next-generation memory technology.
Micron recently reported revenues for the fourth quarter of fiscal 2015 were down seven percent from the third quarter of fiscal 2015 primarily due to a seven percent decline in DRAM ASPs and relatively flat DRAM sales volume. The company also reported four percent lower overall consolidated gross margin in the fourth quarter of fiscal 2015 primarily due to lower ASPs for DRAM.
Despite lower ASPs and lower demand from the PC sector, Micron continues to see healthy demand from other sectors, and expects “industry supply and demand for both DRAM and NAND to be relatively balanced in 2016.” In addition, Micron’s capital investments will focus on deploying advanced technology.
However, Gartner analysts recently reported that the oversupply in the PC segment for DRAMs will continue into 2016. “. . . we believe that 2016 will see a more widespread oversupply that will also impact the server and low-power sectors of the DRAM market. DRAM revenue is forecast to decline 12.2 percent in 2016 due to oversupply and resulting weak pricing," stated Andrew Norwood, research vice president at Gartner.