NAND Flash: Tight Supply Forecast in Q3

Buyers of NAND flash may face tight supply in the third quarter of 2016 for a few key reasons, according to DRAMeXchange, a division of TrendForce. Shipments are being diverted from the channel to meet demand in eMMC/eMCP and SSD markets, and the output of 2D NAND products are declining due to the migration to 3D NAND technology.

The annual bit demand growth rate for the NAND flash market is projected to reach 42 percent in 2016, driven by smart phone, tablet and SSD market demand. DRAMeXchange expects SSDs to be the leading demand driver, accounting for as much as 34 percent of total end market demand. SSD adoption in the notebook market is pegged at greater than 40 percent in the fourth quarter of 2016.

“NAND flash suppliers are reducing their shares of shipments going to the channels in order to satisfy the demand from the eMMC/eMCP and SSD application markets,” said Sean Yang, research director at DRAMeXchange, in a statement. “At the same time, they are also accelerating their migration to 3D-NAND technology. Hence, the overall output for planar (2D) NAND products is declining, and this in turn further limits supply in the spot and retail markets.”

In addition, Samsung Electronics reported a power outage at its Xian fab in China on June 18, which may contribute to the tight supply scenario in Q3. The outage was the result of an explosion at an electrical substation in Xian.

DRAMeXchange reports that the power outage at the Samsung fab only lasted a few seconds and “some of the plant’s capacity was restored on the same day after emergency repair and damage assessment.”

“Samsung’s Xian fab, which is totally devoted to the advanced 3D NAND memory for SSDs, has a production capacity of 100,000 wafers per month under normal operation,” according to Yang.

Yang believes the partial recovery will have limited impact on Samsung’s NAND flash output in the long term. “Ramping up the production and enlarging the scale of capacity expansion can offset the losses for Samsung if the number of damaged wafers in process was under 10,000 pieces. On the other hand, this unexpected event will also intensify the anticipation of a supply shortage in the third quarter.”

In addition, spot prices of mainstream memory cards, along with TLC wafer pricing, have been rising for three consecutive months since April 2016, according to DRAMeXchange’s latest NAND flash price report. The market researcher expects the price trend to continue into the third quarter.

For buyers of DRAMs, prices are expected to stabilize in 2017 due to suppliers implementing plans to control supply, according to DRAMeXchange. Strategies include “delaying production on new process, lowering capital expenditure and adjusting product mix.”

DRAMeXchange lowered the DRAM forecast for annual bit growth from 25 percent to 23.1 percent in 2016. The market researcher estimates that the overall bit supply growth rate after 2017 may fall below 20 percent, which will allow DRAM prices to stabilize.

“The DRAM glut will start to moderate as suppliers are unlikely to expand their annual bit supply by 30 to 50 percent as before,” according to DRAMeXchange.

Currently, it is a buyer’s market for DRAMs with the average contract selling price dropping over the past 19 consecutive months. The average selling price (ASP) for DDR4 was $1.31 in May and $1.25 for DDR3.

However, DRAMeXchange expects contract pricing to stabilize in the third quarter of 2016. The latest price report indicates that spot prices of DDR3 512x8 chips began to increase during the week of June 6, which has also pushed up the spot quotes for DDR4 chips during the week of June 13.

DRAMeXchange reports that contract negotiations for the third quarter are still ongoing “but PC OEMs have been keen to stock up. Also, supply appears to tighten slightly for some branded DDR4 products,” according to Avril Wu, research director at DRAMeXchange, in a press release.

“End market demand will pick up in the third quarter, when the overall PC production volume reaches its peak and Chinese smart phone brands continue to expand their production volumes as well,” according to Wu. “At the same time, the market release of iPhone 7/7 Plus will also generate strong stock-up demand. Respectively equipped with 2GB and 3GB of memory, iPhone 7 and 7 Plus will effectively consume a large portion of the total DRAM capacity.”