DRAM buyers continued to face tight supply and rising prices in the second quarter of 2017 with no relief in sight in the second half of the year. Pricing for DRAMs is expected to remain on an upward trend, while production capacity expansion will be limited in the second half of 2017. Suppliers are expected to adjust their product mixes based on margins, according to market analysts.
Other factors contributing to tight supply include seasonal demand in the second half and the temporary suspension of Micron’s fab in July. However, the facility resumed normal operation in mid-July and is working to increase wafer starts to make up for the lost production period, reported market research firm DRAMeXchange, a division of TrendForce.
“In total, Micron Technology Taiwan (MTTW formerly known as Inotera) lost around 50,000 pieces of DRAM wafers,” said Avril Wu, research director of DRAMeXchange, in a statement. “As the DRAM market heats up again in the year’s second half due to seasonal demand, this loss will certainly exacerbate the undersupply situation.”
“The chance of a worsening supply shortage in the DRAM market in September will depend on MTTW’s ability to offset the wafer loss,” she continued.
Tight supply, particularly for PC and server DRAMs, has contributed to significantly higher revenues for the top DRAM suppliers. Although the tight supply of memory devices was not as severe in the second quarter (Q2), compared to the prior quarter, global DRAM revenue reached a record high in Q2, according to DRAMeXchange.
The average selling prices (ASPs) for both PC and server DRAMs remained high in the second quarter. The ASPs rose by more than 10 percent sequentially in Q2 while the global ASP of mobile DRAM products grew by five percent, reported DRAMeXchange.
The market research firm attributes the smaller price increase for mobile DRAM to lower annual shipment targets by Chinese smartphone brands. However, DRAMeXchange expects the release of new devices from top tier smartphone makers in Q3, combined with the traditional peak sales season, will result in higher demand for mobile DRAM.
Mobile DRAM pricing is expected to trend up in the fourth quarter, while overall DRAM prices are expected to remain on an upward trend for the remainder of 2017.
Market Growth and Supply
The higher tags resulted in a 16.9 percent increase in global DRAM revenue in the second quarter of 2017, compared to the first quarter, according to DRAMeXchange.
Market research firms have adjusted the growth rates of the overall semiconductor market based on the strength of the memory device segment. IC Insights, for example, now forecasts the DRAM market to be the fastest-growing IC segment in 2017, and expects the DRAM market to increase 55 percent this year.
“The DRAM market benefitted from the upswing in ASPs and continuing progress in suppliers’ technology migrations,” said Wu. “At the same time, suppliers do not appear to have plans to expand their production capacities in a significant scale between now and the end of the year.”
“Despite product mix adjustments, suppliers had difficulty meeting the various growing demands in the DRAM market,” said Mark Liu, analyst, DRAMeXchange, in a statement.
“Thanks to the increase in the average memory density of server systems, as evidenced by the adoption of high-density 32-GB RDIMMs and 64-GB LRDIMMs in this year’s first half, the profit margin of server DRAM surged,” Liu said.
“The introduction of servers based on Intel’s Purley platform in this year’s second half will further raise the market penetration rate of DDR4 2666MHz modules. On the whole, server DRAM supply is expected remain tight throughout the remainder of 2017,” he continued.
The top three suppliers saw substantial gains in their DRAM businesses in the second quarter of 2017. Number one ranked Samsung grew its revenue by 20.7 percent, reaching $7.6 billion, followed by second-place SK Hynix with an 11.2 percent increase, reaching $4.5 billion, while third-place Micron posted a 20.2 percent revenue increase, reaching $3.6 billion, according to DRAMeXchange.
Some of the biggest revenue gains were seen in the server DRAM segment. The top three increased their server DRAM revenue by 30.1 percent sequentially in the second quarter.
Samsung’s Q2 revenue for server DRAMs increased by 36.5 percent, compared to the prior quarter, reaching about $1.99 billion with a 44.8 percent global market share. During the quarter, Samsung’s memory business focused on its high-density server DRAM and SSD products due to tight supply, strong ASPs and high server market demand, said DRAMeXchange.
“In the second quarter, even though demand growth for some applications such as mobile was slow on the weak seasonality, demand for high-density server DRAM and SSD continues to be strong. Due to the restriction of industry supply, supply and demand remained solid and price continued to rise,” said Se Won Chun, senior vice president of Samsung’s Memory Marketing group, during a conference call.
Chun said: “In the second half, including the third quarter, despite the fact that industry supply of 3D NAND and sub-20-nanometer DRAM production will increase, overall supply and demand is expected to remain tight due to continuous solid demand mainly from mobile and server.”
“For DRAM, strong demand from data center servers is expected,” Chun added. “And, at the same time, demand for high-density DRAM such as 64-gigabyte is expected to remain solid due to the expansion of new CPU platforms for server application.”
“In addition, mobile demand is expected to remain solid thanks to new high-performance product launches and continuous content growth,” he continued. “However, supply and demand may vary according to each application depending on a supplier's transition speed and product mix strategies.”
“In the second half of 2017, server ODMs and OEMs will be responding to rising demand generated by data center projects,” said Liu. “Samsung therefore will adjust its shipment fulfillment rates for different clients. This way, Samsung will be able to satisfy its main customers and maintain high profit at the same time.”
SK Hynix also boasted double-digit gains for server DRAM sales in Q2. The memory device maker grew its server DRAM revenue by 28.2 percent compared to the prior quarter, reaching $1.38 billion. The growth was primarily attributed to “transferring some of its manufacturing capacity from low-power DRAM production to server DRAM production,” expanding its server DRAM share to 32 percent in overall DRAM product mix, according to Liu.
SK Hynix will be producing server solutions primarily on its 21-nm process in the second half, and will focus on 32-GB module production for the remainder of the year, according to DRAMeXchange.
“Demand for server DRAM continued to rise sharply while a supply shortage continued and the company responded by increasing the server DRAM portion in our bit shipment,” said Seok-Hui Lee, COO, at SK Hynix, in a webcast.
Lee said ASPs rose by 11 percent quarter on quarter led by server DRAM, and DRAM bit shipments increased three percent quarter on quarter.
“For the year, supply growth is likely to remain slightly slower than demand growth,” Lee continued. “Suppliers who can significantly increase DRAM capacity do not have enough clean room to do so, and the pressing need to invest in 3D NAND will leave less financial room for investment in DRAM. But supply growth is expected to accelerate in the second half, gradually easing the supply shortage.”
Micron also increased its server DRAM bit shipments in the second quarter and reported a rise in ASPs, resulting in 22 percent revenue growth for server DRAMs, reaching $1.07 billion.
“Micron benefitted from the general undersupply situation and made the right adjustments to its product mix. Furthermore, Micron has raised the yield rate of its 20-nm process significantly,” said Liu.
“Server products already made up nearly 30 percent of Micron’s DRAM output for this first quarter. To ensure that the overall product mix is at optimal profitability and meeting market demand, Micron will keep expanding the output share of server DRAM to the end of this year,” Liu added.
“The applications today are really making memory very strategic and driving higher content, for example, higher content of DRAM attached to per server and enterprise and cloud computing applications,” said Sanjay Mehrotra, CEO at Micron in a webcast. “More DRAM memory is needed in mobile devices to fulfill the requirements of future applications in mobile devices where you will see more trends, even in mobile devices related to AR and VR and AI.”
Bit demand growth is forecast to exceed bit supply growth in the DRAM market in 2017. The annual bit supply growth rate is currently projected at 19.5 percent, while annual bit demand growth is estimated to be more than 22 percent this year, according to DRAMeXchange.