NAND Flash Prices Drop Again; Capacity Plans Could Lead to Oversupply
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A recovery in the smartphone market and strong growth for servers in data centers continue to drive up DRAM sales in the second half of 2017. This also means continued price increases in the double digits.
Revenue growth for mobile DRAM in the fourth quarter is expected to outperform last quarter’s sales increase of 4.3 percent, according to DRAMeXchange, a division of TrendForce. Average price hikes for mobile DRAM is expected in the 10 to 15 percent range in the fourth quarter, after increasing by less than five percent in Q3.
SK Hynix boasts the largest growth rate in Q3 for mobile DRAM with a sales increase of 30.7 percent. Although the company’s sales significantly outperformed the market in Q3, DRAMeXchange expects SK Hynix’s growth rate to be curtailed by a “serious shortage of high density eMCP.”
Nevertheless, Samsung still dominates with a 61.5 percent share of the mobile DRAM market, followed by SK Hynix’s market share of 21.5 percent. Samsung’s mobile DRAM revenue dropped one percent in Q3 due to “robust market demand for server DRAM,” according to DRAMeXchange. However, Samsung’s total revenue in Q3 was $8.8 billion, an increase of 15.2 percent compared to the prior quarter.
Micron’s mobile DRAM sales dropped by 13 percent in Q3. DRAMeXchange attributes the decline to the Fab2 accident in July at Micron Technology Taiwan, which primarily serves the smartphone market. Since the price hike for Micron’s mobile DRAM is expected to be the highest among the top three suppliers, the market researcher expects the decline to reverse in Q4.
Shortage Continues for Server DRAM
Strong demand coupled with higher average selling prices (ASPs) led to significant revenue increases in the third quarter for the top three DRAM server suppliers. The trend is expected to continue into the fourth quarter thanks to strong demand from data centers in North America.
However, it could also lead to a worsening undersupply for server DRAMs. The good news is the top three server DRAM suppliers – Samsung, SK Hynix and Micron – are all expected to increase production capacity.
Revenue for the top three DRAM server suppliers rose by 25.2 percent in the third quarter compared to the prior three-month period, due to higher ASPs and demand for server systems, according to DRAMeXchange.
DRAMeXchange analyst Mark Liu expects “that shipments of server systems will remain brisk in the fourth quarter, aggravating the undersupply situation for server DRAM.”
He further stated that “the contract prices of server memory modules for the year’s final quarter are projected to increase by six percent to 10 percent on average compared with the third quarter. Suppliers therefore can expect to see their revenue and profit margins coming to a new high for the year.”
There is no doubt that Samsung has a big lead in the server DRAM market, holding nearly 46 percent share globally. The company’s revenues for server DRAM increased by 28.4 percent in the third quarter, compared to the prior quarter.
Liu noted that Samsung is focused on increasing its market share of high-capacity server memory modules.
“As the demand for server systems hits its peak for 2017 in the fourth quarter, the demand for high-capacity modules will also follow up to a new high for the year,” he said. “Demand for server DRAM modules will also be driven by the increasing market availability of Intel’s latest platform Purley.”
Liu expects Samsung “to make the necessary adjustments” to keep up with orders from OEM and ODM customers. He also noted that while Samsung’s server DRAM manufacturing in 2017 is primarily based on the 20-nm process, the share of its 18-nm process is projected to reach 40 percent in the fourth quarter, and will become Samsung’s primary process for its server DRAMs in the first quarter of 2018. Capacity share is expected to exceed 50 percent by the end of the quarter.
SK Hynix also experienced significant revenue growth in the third quarter, rising by 30.1 percent, thanks to server demand in North America. SK Hynix primarily uses the 21-nm process for manufacturing server DRAM. The company is expected to start producing small volumes on 18-nm process at the end of the first quarter of 2018 and ramp up in the second quarter as it transitions a greater share of capacity to 18 nm.
In addition to adding production capacity, SK Hynix also is adjusting the allocation of some of its production capacity to take advantage of demand for server systems. Liu expects SK Hynix to raise the shipment share of its high-capacity server DRAM modules, which will account for about 60 percent of its server DRAM product shipped in 2018.
Micron also leveraged server demand, increasing its revenue by 13 percent for server DRAMs, which accounts for 30 percent of its product mix. Liu said Micron’s profit growth is primarily driven by higher ASPs. He expects Micron to raise its production capacity to keep up with demand. The company primarily uses its 20-nm technology for its key products but is expected to increase the wafer input on the 17 nm if yield rates reach economies of scale.
“Whether the 17-nm technology will be used for Micron’s server product lines will depend on the situation after the second quarter of 2018,” Liu said.
Sanjay Mehrotra, president and CEO of Micron said at November’s Credit Suisse 21th Annual Technology, Media & Telecom Conference that technology transitions is a key focus for the company. He said managing technology transitions is the best ROI method for meeting bit objectives in terms of driving revenue growth.
“In terms of industry, I think yes, there may be some wafer capacity additions but they will remain relatively small,” he said at the conference. “At the end of the day it’s about large numbers as well. I mean there is such a large installed capacity in the industry that any small capacity that gets added only has a small affect. For us though it’s all about technology transitions.”
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