Watch for Tight Supply of NAND Flash in Q3

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Buyers of NAND flash should prepare for increasingly tight supply in the third quarter of 2016 due to increased demand from smartphone and client-grade SSD markets, according to DRAMeXchange, a division of TrendForce. Buyers also need to watch for tightening supply of PC DRAMs as memory makers shift more production to mobile DRAM. As a result of tight supply, prices are expected to rise for both NAND flash and DRAM over the next two quarters.

DRAMeXchange attributes the overall strong demand for memory components to a recovery in the notebook market, strong smartphone shipments, and growing demand for servers. As a result, prices of DRAM and NAND flash memory is forecast to rise in the fourth quarter with DRAM contract prices expected to post another sequential increase of more than 10 percent.

Tight supply started in the second quarter of 2016 due to demand for high-capacity eMMC/eMCP memory devices from Chinese smartphone brands and inventory stock up ahead of the iPhone 7 release, according to a DRAMeXchange report. At the same time, contract prices for eMMC and client- and enterprise-grade SSDs started to ease.

Tight supply for NAND Flash will continue as smartphone customers continue to stock up for components, resulting in continued NAND flash price hikes in the fourth quarter, according to DRAMeXchange. The level of price increase will depend on the amount of inventories that module makers are willing to carry, according to the analysis.

Channel prices of NAND flash wafers began to rise on a monthly basis since April, which increased global revenue for “branded” NAND flash suppliers by 3.4 percent sequentially in the second quarter. “This result signaled the end of revenue decline that persisted in the past two consecutive quarters,” according to Sean Yang, research director of DRAMeXchange.

“Demand is rising sharply for smartphones and client-grade SSDs in this year’s second half, so NAND Flash supply is going to become increasingly tight in the third quarter,” Yang said in a statement. “As NAND Flash prices go steadily upward, DRAMeXchange expects suppliers to post further growths for their revenues and operating margins in the third quarter. Sequential revenue and operating margin increases are also forecast for the fourth quarter.”

A strong DRAM market also is projected heading into 2017 as supply tightens for PC DRAM due to growing demand in the Chinese market.

“The memory market this year has benefitted from exceptional shipments results from Chinese smartphone brands and expanding server shipments caused by growing data center demand in China,” according to DRAMeXchange. “Server orders going to Taiwan-based OEMs in the second half of 2016 have increased by almost 20 percent on average versus the year’s first half. In response to shifting market demand, DRAM manufacturers since the second quarter have significantly raised mobile and server DRAM outputs while scaling back their PC DRAM shipments.”

In addition, demand for notebooks is picking up in North America in the third quarter and major brands HP and Dell have increased their notebook shipments by more than eight percent sequentially, according to DRAMeXchange.

“Mobile DRAM is expected to make up nearly 45 percent of the global DRAM shipments this fourth quarter while the share of server DRAM will exceed 25 percent,” said Avril Wu, research director of DRAMeXchange, in a statement. “PC DRAM by contrast will constitute less than 20 percent of the entire fourth-quarter shipments.”

Wu reports that contract prices of 4GB PC DRAM modules (DDR3 and DDR4) have stabilized at $13.50 on average as supply tightens. However, as DRAM makers shift to mobile DRAM production at the expense of PC DRAMs, she expects PC DRAM prices to rise. The average contract price of 4GB modules (DDR3 and DDR4) is expected to increase 15 percent sequentially to $15.

“Currently, fourth-quarter contract prices arranged between some major Chinese smartphone brands and DRAM suppliers are over 10 percent higher on average compared with their third-quarter prices,” according to DRAMeXchange. “Contract prices of mobile DRAM are likely to post larger sequential increases during the fourth quarter.”

“Due to OEM demand and challenges related to technology migration, major NAND Flash suppliers such as Samsung, Toshiba, SanDisk and Micron have significantly reduced their shipments to memory module makers,” said DRAMeXchange. “Facing supply shortage, module makers are forced accept price hikes from suppliers as well. Data from DRAMeXchange shows that prices of mainstream 128 Gb TLC wafers rose 10 percent from the end of June to the second half of August.”

When there are short supply situations, OEMs sometimes resort to overbooking and double ordering, which is starting to happen in the NAND flash market. Buyers have to be careful as this practice can lead to significant inventory and supply chain issues in the quarters ahead.

“OEM clients are fairly conservative regarding the progress that NAND Flash suppliers (excluding Samsung) will make in their 3D-NAND migrations during the fourth quarter. Supply shortage worries have already caused some clients to engage in overbooking and double booking of orders,” according to DRAMexChange.