While market oversupply is generally good news for DRAM buyers, it has resulted in severe downward price pressure, which has hurt profit margins and revenues in the DRAM market. Lower demand across the big consumers of DRAMs – desktop and notebook computers – as well as tablets and smartphones is creating excess inventory in the supply chain, forcing suppliers to significantly reduce their average selling prices (ASPs), reported IC Insights.
A 16 percent drop in DRAM ASPs, combined with a three percent decline in DRAM unit shipments, will result in a 19 percent contraction in the DRAM market in 2016, according to IC Insights. The market researcher pegs the DRAM market as the worst-performing market in 2016.
However, the pricing roller coaster ride in the DRAM market is nothing new. Case in point: The annual average DRAM ASP increased by 48 percent and 26 percent in 2013 and 2014, respectively, resulting in 30 percent growth in each of those years, and the strongest growth among IC categories, according to IC Insights.
“Market share grabs and excess inventory started the cycle of steep price cuts in the second half of 2015 and that continued through the first half of 2016,” said IC Insights. “When coupled with strength or weakness in DRAM unit shipments, bit volume demand, and the amount of capacity and capital spending dedicated to DRAM production each year, this market can turn quickly up or down.”
IC Insights expects the severe decline in the DRAM market to drag down growth for the total memory market and total IC market by 11 percent and two percent, respectively.
The good news for DRAM suppliers is that ASPs started to strengthen in the second quarter of 2016 and is expected to continue upward throughout 2016 and into 2017, thanks to demand from enterprise server segments, mobile platforms, and new smartphones, said IC Insights.
However, the upward price trend may not last. Two China-based companies, Sino King Technology in Hefei, China, and Fujian Jin Hua IC Company, plan to enter the DRAM market in late 2017 or early 2018, which could set off another round of price declines, reported IC Insights.
In addition, global DRAM revenue in the second quarter increased 6.3 percent sequentially, reaching $9.1 billion due to bit supply expansion, driven by increased output from Micron’s 20 nm and SK Hynix’s 21-nm process, according to DRAMeXchange, a division of TrendForce.
Despite the bit supply growth, global ASPs across applications fell by more than five percent in the second quarter, compared to the previous quarter, according to DRAMeXchange.
“Looking at the end market, shipment results of notebooks and server-related products were average in the second quarter, but smartphone shipments remained strong in China,” said Avril Wu, research director of DRAMeXchange, in a statement. “The top three DRAM makers therefore continued with their shift towards mobile products in their portfolios. DRAMeXchange expects global DRAM revenue to increase significantly in the third quarter on account of the peak season stock-up demand.”