Price Hikes Slow for Mobile DRAM

Lower than expected demand for smartphones is putting the brakes on price increases for mobile DRAM in the first quarter of 2018 but it may not last. Contract prices for mobile DRAM are forecast to rise by only three percent in the first quarter of 2018, according to DRAMeXchange, a research division of TrendForce. However, a rollout of new Android flagship models in the second quarter is expected to keep prices stable or slightly up.

Major brands have adjusted their production plans and have deferred restocking of materials since the middle of the fourth quarter of 2017 as they faced rising DRAM prices and a squeeze on their profits, reported DRAMeXchange.

This resulted in excess inventory of key components, particularly those with long lead times and higher price tags, including mobile DRAM. In some cases, inventory has doubled, according to DRAMeXchange.

During the traditional slow season in the first quarter, smartphone vendors are expected to lower their demand, cutting mobile DRAM price increases to only three percent, down from an initial forecast of five percent. Another contributing factor is the price drop of NAND flash.

“The weakened demand has led to long time negotiation between component suppliers and buyers,” said DRAMeXchange. “The contract prices may not be finalized until the end of January.”

However, demand is expected to pick-up in the second quarter thanks to the rollout of Android phones that is expected to put a strain on supply. But lower NAND flash prices coupled with suppliers pushing eMCP with high-density NAND flash will likely keep contract prices stable or slightly higher.

During SK Hynix’s fourth quarter earnings call this week a company executive said it would base its memory pricing strategy on market conditions for the different segments of the smartphone market. For example, since the memory BOM for low-end smartphones is a large percentage of the total cost “there is very little room for them to accept the rising price in memory; however, “memory price remains affordable” at the high end due to hardware upgrades in flagship models.

Thanks to continued market demand, particularly from server and mobile device markets, and rising average selling prices (ASPs) for DRAM and NAND flash, SK Hynix reported record revenue, profit and net income. The company’s fourth quarter revenues rose 11 percent compared to the previous quarter and 75 percent year-over-year. DRAM ASPs increased nine percent quarter-over-quarter across all DRAM products, while bit shipments rose by three percent.

DRAMeXchange also reported that the intervention by China's National Development and Reform Commission to moderate the price increases of mobile DRAM has been limited.

Constrained supply is expected to continue in the first half of 2018 until additional capacity is brought online. Samsung’s Pyeongtaek plant will start operation in the second half, and SK Hynix’s second fab in Wuxi is forecast to come online at the end of the year. The Wuxi fab is expected to double the company’s DRAM production capacity.

“Mobile DRAM's content per box will keep growing as smartphone penetration continues to rise in India and China and the lower end smartphones, which rapidly grew in the past three years, now face upgrade demand,” said Myung-Young Lee, SK Hynix’s SVP, CFO, during the fourth quarter earnings call.

Young expects DRAM demand to grow at a 20 percent level coupled with a longer technology migration lifecycle and a limited wafer capacity increase. “Supply will remain tight despite higher investment across the industry this year,” he said.