Big Chip Makers Got Bigger in 2018
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Over the past two years, memory device buyers have faced DRAM supply issues due to curtailed production capacity expansion and technology migration challenges. This also translated into double-digit price hikes. Samsung is now considering production capacity expansion for DRAM, which could potentially end tight supply for DRAM sooner than anticipated, according DRAMeXchange, a division of TrendForce.
Major DRAM suppliers and industry watchers agree that industry DRAM bit output will grow about 20 to 22 percent in 2018. DRAMeXchange recently increased the projected DRAM bit supply growth for the industry to 22.5 percent in 2018, up from 19.6 percent, due to expected production capacity increases. The new projection matches its estimated bit demand growth rate of 22+ percent.
However, the forecast for DRAM bit supply growth in 2017 remains unchanged. “Global DRAM bit output is estimated to grow by nearly 20 percent for 2017, lower than the average level of recent years, said Ken Kuo, research vice president of TrendForce’s memory division DRAMeXchange, in a release. “ DRAM supply has been tight on account of the slowdown in technology migration and the conservative stance towards capital spending as DRAM suppliers aim to keep their profits high.”
Prices started to rise in the second half of 2016 driven by strong demand and it hasn’t slowed. PC DRAMs experienced one of the biggest upticks in contract pricing; likely ending the year with a 60 percent price increase compared to 2016.
“The average contract price of mainstream 4GB DDR4 PC DRAM modules, for example, has soared from $13 at the end of second quarter of 2016 to the current $30.5 in the fourth quarter of 2017,” said Avril Wu, research director of DRAMeXchange, in a statement. “This represents an increase of 130 percent over six consecutive quarters.”
Profits for the top three DRAM suppliers – Samsung, SK Hynix and Micron – also have increased with operating margins of 59 percent, 54 percent and 44 percent, respectively.
“The outlook for the fourth quarter of 2017 can be summed up as higher contract prices and higher profits,” said Wu.
Strong demand also has changed product mix. Mobile DRAM now holds the largest market share among the different categories of DRAMs and server DRAM has seen the fastest growth thanks to cloud computing and big data.
2018 Capacity Plans
As a result of rising profits, it is likely that all major DRAM suppliers will improve their production capacity.
DRAMeXchange believes Samsung will increase its production capacity to raise the barrier to market entry, particularly for Chinese memory manufacturers, and to maintain its leadership position in the DRAM market.
“If Samsung chooses this strategy, the short-term effect will be an increase in depreciation cost that will also erode the profitability of its DRAM business,” according to DRAMeXchange. “However, Samsung’s ultimate goal is to ensure its long-term dominance in the market in terms of having an enormous production capacity and being ahead of its competitors’ technologies by one to two years.”
The market researcher reports that Samsung is considering a change at its new Pyeongtaek facility – fabricating DRAM wafers instead of NAND flash wafers as planned – and expanding capacity at its line 17 fab.
If Samsung follows through with its expansion plans, DRAMeXchange expects its DRAM output for 2018 will increase by 80,000 to 100,000 wafers. This translates into nearly 500,000 wafers per month by the end of 2018, up from 390,000 wafers per month at the end of 2017.
“In terms of annual bit supply growth for 2018, DRAMeXchange originally forecast Samsung’s at 18 percent,” said Wu. “However, the annual growth rate for next year could go up to 23 percent if Samsung carries out capacity expansion.”
Other major DRAM suppliers also have plans to increase production capacity next year. As reported earlier, SK Hynix is building a second fab in Wuxi that will come online next year and is transitioning to 18-nm mode. The Wuxi fab – once completed – will double the company’s production capacity for DRAM.
SK Hynix also announced that its M14 fab will reach a monthly wafer start capacity of 80,000 pieces by the end of 2017. During its Q3 earnings call, the company said 50 percent of the second floor of M14 has been completed for phase 1, targeting volume production of NAND. The remaining 50 percent is expected to be completed by early December, and will be used primarily for NAND production. However, SK Hynix noted that part of it can be used for technology migration of DRAM.
“Undersupply is likely to continue for some time despite the attempts to increase supply,” said SK Hynix’s president Seok-Hui Lee. “Particularly for DRAM, there is much slower productivity gains from technology migration. The migration process itself is becoming more complex, with more steps in the process, more equipment needed and production time becoming longer than before.”
SK Hynix said if it were to use 50 percent of the M14 second floor for DRAM production it would enable the company to further ramp up DRAM wafer capacity by 20,000. The company also noted “converting the NAND fab in Cheongju to DRAM is not part of our plan yet.”
There are also market signals that Micron is getting ready to either “build new fabs, expand production capacity or upgrade its manufacturing technology,” according to DRAMeXchange.
However, Micron reported in September that it did not have any wafer capacity expansion plans for fiscal year 2018 and would focus on technology migrations.
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