Expect Tight DRAM Supply in 2018; Possible Oversupply of NAND Flash

There is good and bad news for buyers of memory devices. The good news is a deal to acquire Toshiba’s memory business may result in an oversupply of NAND flash in the first half of 2018, easing concerns of tight supply next year. However, cautious production capacity plans by leading DRAM makers means continued tight supply for DRAMs next year.

According to market research firm DRAMeXchange, a division of TrendForce, the three major DRAM suppliers – Samsung, SK Hynix and Micron – are slowing down their capacity expansions and technology migrations to maintain prices in 2018 at the same levels in the second half of this year. “Doing so will also help them to sustain a strong profit margin,” said DRAMeXchange.

Global DRAM bit supply is forecast to grow 19.6 percent in 2018, while bit demand is growing at a higher rate, according to DRAMeXchange. The same scenario is happening this year. The researcher projects an annual bit supply growth rate of 19.5 percent in 2017 but bit demand growth is estimated at more than 22 percent this year.

“Increase in memory content for smartphones and robust end demand from the server and data center markets will push the overall DRAM demand up in 2018,” according to Avril Wu, research director of DRAMeXchange, in a statement

Although new fabs are underway to relief strained supply, they won’t be ready for mass production until 2019 at the earliest, Wu said. “Constructing a 12-inch wafer fab will take at least a year. And additional time has to be set aside for equipment installation and trial production runs.”

In addition, she said the wafer start volumes for the top three suppliers will expand by only five to seven percent in 2018, primarily due to reallocation of existing capacities and upgraded manufacturing processes.

Here is Wu’s analysis:

Samsung’s monthly wafer start volumes are reaching 390,000 pieces on average. The only fab sites that have space for further expansion are Line 17 and part of Line 15 plant sites, according to Wu. Samsung has announced plans to build a 12-inch wafer fab for DRAM production in Pyeongtaek, South Korea, but it won’t be operational until 2018 at the earliest.

SK Hynix can’t fulfill its DRAM orders, said Wu. The company has shifted a part of its M10 fab’s capacity to foundry works instead of making DRAM products primarily because it is an outdated facility. “Due to its old age, M10 will incur higher wafer loss if SK Hynix tries to upgrade its DRAM production to the 18nm process,” according to WU.

By the end of 2017, SK Hynix’s M14 fab will reach a month wafer start capacity of 80,000 pieces. The company announced it is building a new DRAM fab in Wuxi, China, which is expected to be completed by the fourth quarter of 2018 at the earliest.

Micron has not announced its capacity expansion plans. Wu said that its plant in Hiroshima, Japan, and the plant owned by its Taiwanese subsidiary Micron Technology Taiwan (originally Inotera) are running at full capacity. In July, Inotera temporarily shut down its Fab-2 fabrication plant in Taiwan due to a malfunction of the nitrogen dispensing system that contaminated the wafers and equipment.

Micron’s other Taiwanese subsidiary Micron Memory Taiwan (originally Rexchip) still has 60 percent to 70 percent of its A2 fab site available for capacity expansion, which could add about 30,000 to 40,000 pieces, Wu said. “However, Micron has yet to reveal a plan for a new fab building. In the future, Micron may have to devise a growth strategy that takes account of its limited ability to increase its production capacity.”

NAND Flash Oversupply on the Horizon

The acquisition of Toshiba’s memory business, Toshiba Memory Corp. (TMC) by a Japanese-U.S. consortium led by U.S. private equity firm Bain Capital for $18 billion is expected to have an impact on the NAND flash market in the first half of 2018. The deal, if it is approved, also will make TMC a rival to Samsung in NAND flash tech and production capacity thanks to significant capital investment by the consortium.

The consortium consists of government-backed investors, major private investment firms and technology companies including – interestingly, SK Hynix and Apple.

“Toshiba’s financial problem has been a major reason as to why the Toshiba-Western Digital alliance are behind their competitors in planning 3D-NAND capacity,” said Alan Chen, senior research manager of DRAMeXchange, in a statement.

“The infusion of capital from the new stakeholders in TMC will be like a shot of adrenaline,” said Chen. “Given that the total investment in a new NAND Flash fab (with a monthly capacity of 80,000~100,000 wafers) averages around $8 billion, neither Toshiba nor Western Digital can alone shoulder the cost of capacity expansions and technology development, especially as they are facing against the industry leader Samsung.”

“After the sale, TMC may be able to raise its 3D-NAND Flash capacity and yield rate to a level higher than initially expected,” Chen continued. “Plus, there is a significant degree of uncertainty in NAND Flash demand for the first half of 2018. Hence, the deal in the short term may actually cause supply-driven price decline in the NAND Flash market during the first half of 2018.”

However, the deal needs the approval of Western Digital, Toshiba’s joint venture partner. Their alliance made the 48-stacking technology its mainstream NAND manufacturing process in the first half of 2017, which will account for about 30 percent of the alliances’ total monthly NAND flash capacity, according to DRAMeXchange.

In addition, both companies jointly invested in TMC’s Fab 6 in Yokkaichi, Japan, which began construction in March. The facility is slated to produce the latest 3D-NAND products in 2019. Toshiba holds about a 55 percent share of their joint venture versus Western Digital’s 45 percent, according to Chen.

“Nonetheless, the future of Fab 6 is still uncertain because the sale of TMC has also led to disagreements between Toshiba and Western Digital regarding their collaboration,” he added.