Supply Chain More Optimistic About Q2 Component Demand
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NAND flash prices are expected to fall by five percent in the first quarter of 2018 due to production capacity expansion and lower demand during the traditional off-peak season, according to DRAMeXchange, a division of TrendForce. Demand from notebook, tablet and smartphones (primarily Chinese branded) is expected to fall by more than 15 percent in the first quarter of 2018 compared to the fourth quarter of 2017. This means overall bit demand will drop by zero to five percent.
NAND flash prices are not likely to fall throughout the year, said Alan Chen, senior research manager at DRAMeXchange. “Prices will drop mainly in the first half of the year.”
At the same time that demand is dropping, suppliers are improving their production capacity and yield rate of 3D-NAND flash, translating into a bit output increase of more than five percent compared to the fourth quarter of 2017. This will lead to an oversupply situation in the first quarter, resulting in lower contract prices for NAND flash, SSD and wafers, according to DRAMeXchange.
“As for NAND flash suppliers, they always try to keep the contract price on the high side, but they should also consider the current market condition, that is, they may need to decrease the price first to boost the demand,” added Chen.
“The key in terms of pricing is that there is lot of demand elasticity in the NAND industry,” said Sanjay Mehrotra, president and CEO of Micron at November’s Credit Suisse 21th Annual Technology, Media & Telecom Conference. “And any lowering of prices should not be misunderstood as a negative trend at all because lowering of prices only opens up many more new market applications for NAND, particularly given the price elasticity; it also grows the existing markets for NAND.”
Mehrotra is “pretty optimistic” about the NAND industry. “As long as the NAND flash price decline is less than the cost decline, I think that it bodes very well for the health of the industry.”
In a recap of the year, undersupply was intensified by the transition from 2D-NAND to 3D-NAND in the first quarter of 2017, which resulted in production capacity loss. At the same time there was strong demand from Chinese vendors like Huawei, OPPO, and Vivo, said DRAMeXchange. The result: contract prices of eMMC/UFS, client SSD, and enterprise SSD all increased by more than 10 percent in 1Q17 compared with 4Q16.
Increases of NAND flash prices started to slow in the second quarter of 2017 when demand from Chinese-branded smartphones was lower than expected although demand for NAND flash from notebooks and tablets increased. In the third quarter, contract price increases for NAND flash started to stabilize, ranging between zero to six percent.
However, the gap between supply and demand widened in the second half of the year with the launch of the new iPhone and higher demand for SSDs in servers, said DRAMeXchange.
In the fourth quarter, growth for NAND flash has slowed in the server market while strong demand continues from Apple. “In addition, Toshiba’s production troubles did not have noticeable effect on the industry as rumors expected,” according to Chen. “Together with 3D-NAND’s continuous capacity expansion, the supply will eventually meet up to the demand, thus achieving market balance and resulting in stable or slightly higher contract prices.”
Micron’s Mehrotra sees “healthy” inventory levels. “It’s nothing unusual in terms of inventory, both for DRAM or for NAND,” he said at the Credit Suisse conference.
“If you’re looking at dollar value of inventory, as reported by different OEMs, you have to keep in mind that the pricing trends in the memory industry have driven prices higher,” he added. “So higher dollar inventory does not necessarily translate into higher unit or a higher bit inventory given that the inventory is priced at cost and the cost of NAND in the marketplace to the customers has went up in recent times.”
The second half of 2018 could be a different story for NAND flash prices and supply. The oversupply situation is expected to lead to lower prices for end products and OEMs using more advanced products. However, it will also result in an increase of memory content. So when the peak season hits in the second half of 2018, NAND flash may end up in tight supply again, according to Chen.
DRAMeXchange anticipates stable or slightly higher contract prices for NAND flash in the second half of 2018, said Chen.
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