The contract price for PC DRAM is forecast to increase by more than 30 percent sequentially in the fourth quarter of 2016 due to tight supply, according to DRAMeXchange, a division of TrendForce. With tight supply expected to continue into 2017, buyers also should anticipate higher tags.
The market research firm attributes the price increase to tight supply as DRAM suppliers reduced their PC DRAM production output in favor of server and mobile DRAM production. The price hikes for PC DRAM, which started in the third quarter, also pushed up prices for mobile and server DRAMs.
“The PC DRAM market has been severely undersupplied in the second half of 2016, and this in turn has also led to an across-the-board price upturn for all types of DRAM during the recent period,” said Avril Wu, research director of DRAMeXchange, in a statement.
The “average contract price of 4GB PC DRAM modules increased more than 20 percent between September and October from $14.5 to $17.5 as DRAM suppliers completed their fourth-quarter contract negotiations with first-tier PC OEMs,” according to Wu.
“Spot prices of DDR3 and DDR4 4Gb chips also rose 17 percent to 24 percent, respectively, in October compared with the prior month to $2.46 and $2.48 on average,” she added.
As a result, suppliers saw their DRAM revenue in the third quarter of 2016 increase by 15.8 percent sequentially, according to Wu.
“The third quarter saw a surge of stock-up demand as Apple and Samsung prepared to expand shipments of their flagship smartphones,” Wu said in a statement. “Even though Samsung later had to suspend the production of Galaxy Note 7, the company contributed significantly to the increase in both consumption and prices of DRAM in the third quarter.”
Another contributing factor was “the better-than-expected notebook shipments in the recent period,” Wu said. “The shipment share of notebooks equipped with 8GB of RAM has risen as well.”
The three top suppliers in the third quarter– Samsung, SK Hynix, and Micron – all posted revenue gains. Samsung posted the highest growth in the third quarter with a sequential quarterly increase of 22.4 percent. SK Hynix recorded 8.6 percent sequential quarterly growth and Micron grew 12.6 percent sequentially.
“Samsung and SK Hynix now represent 50.2 percent and 24.8 percent of the global DRAM market. Together, the two South Korean DRAM suppliers control about 75 percent of the global market,” according to Wu. “U.S.-based Micron remained No. 3 in the revenue ranking, posting a sequential quarterly growth of 12.6 percent and holding on to 18.5 percent of the global market.”
In addition, DRAM suppliers increased their operating margins in the third quarter of 2016, which is expected to continue into the fourth quarter. “Further increases in suppliers’ operating margins are expected for the fourth quarter on account of rising DRAM prices,” Wu said.
“From the supply side, PC DRAM currently accounts for less than 20 percent of the total output from the global DRAM industry because suppliers are focusing on the mobile and server DRAM markets,” Wu stated. “From the demand side, branded device makers have fairly low DRAM inventories while facing higher-than-expected demand in the busy season. Hence, prices of PC DRAM have risen sharply in the recent period.”
Wu also noted that “the recent DRAM price upswing reflects the current oligopoly – the top three suppliers achieve profits while slowing down China’s foray into the market.”
“Based on the oligopolistic market situation, the trio have opted for co-existence as the best way to maximize their own profitability," stated Wu. "They therefore are turning away from aggressively competing for market share through price reduction and capacity expansion.”
“In a sense, there a strategic aspect behind the latest wave of DRAM price increase,” Wu added. “In the short term, rising prices lift up margins for suppliers. In the long run, the barrier to keep Chinese competition out of the DRAM market is reinforced.”
However, heading into 2017, capacity expansion and technology migration is expected to be curtailed.
“Capital expenditure growth of the top three suppliers will be fairly moderate in 2017,” said Ken Kuo, research director of DRAMeXchange, in a statement. “Plans for capacity expansion and technology migration will be much more scaled back compared with the efforts of past years because suppliers will generally want to maintain high product margins. With supply expected to remain tight, the DRAM industry’s profit outlook for next year is very optimistic.”
What does this mean for DRAM purchasers? It won’t be a buyers’ market in 2017.