DRAM Prices Head South, Production Capacity to Follow

Analysts report that DRAM prices have reached an inflection point and will post lower average selling prices (ASPs) in the fourth quarter. Spot prices for DRAMs have fallen since the beginning of the year and dropped to below-contract levels in in June. That’s an indication of declining prices across the overall market, according to market research firm DRAMeXchange, a division of TrendForce.

At the same time, memory suppliers are starting to rollback production capacity plans in line with slowing market conditions. A recent contributing factor to that is a CPU shortage, which is expected to impact the entire memory IC market. The CPU shortage could dampen end-product demand, which in turn would decrease the need for memory.

DRAMeXchange has revised its initial estimates of a 1 percent to 3 percent drop in DRAM prices in Q4 to 5 percent quarter over quarter. The lower forecast is attributed to increasing bit supply and limited growth in demand.

“DRAM products have begun to see a weak price trend since Q3 2018 after the price growth of nine consecutive quarters,” said Avril Wu, senior research director of DRAMeXchange, in a statement.

“Particularly, PC DRAM and server DRAM showed only a 1 percent to 2 percent price hike quarter over quarter in the third quarter, while mobile DRAM applications witnessed a flat price trend despite the busy season. Graphics DRAM has even started to experience a price drop during the same period,” she continued.

On the other hand, Wu said, spot DRAM prices have been sliding since the beginning of this year and then dropped to lower-than-contract levels in June. Currently, spot prices are 10 percent lower than contract prices, which is an early indicator of the possible DRAM price decline in general.

DRAM makers are expected to continue their technology migrations in 2019 but there have been some reports that production capacity plans have been rolled back due to lower demand.

“According to DRAMeXchange’s latest observation, capex levels of these three manufacturers [Micron, Samsung and SK Hynix] are likely to decrease in 2019 compared to 2018,” Wu told EPSNews. “This is due to a limited increase in capacity and the lack of major transitions in technology node. However, from a long-term perspective, as the three suppliers all plan to build new manufacturing facilities in 2020, capex might increase to the same level as in 2018 for 2020 and beyond.”

Sanjay Mehrotra, president and CEO of Micron Technology said during last week’s FY Q4 2018 earnings call that Micron plans to grow DRAM and NAND bits in line with estimated industry growth in calendar year 2019 at about 20 percent and 35 to 40 percent, respectively.

However, Micron is monitoring market conditions and expects supply growth to slow in the NAND market next year, which will impact capacity plans.

“Looking ahead, we expect the moderation in supply growth, beginning in the first half of calendar 2019 as the industry transitions to more challenging, 96-layer designs, which provide less benefits node-over-node,” Mehrotra said. “We also expect higher demands due to elasticity, resulting in higher SSD adoption and increasing average capacities across multiple end markets.”

“Our investments will continue to be focused on technology transitions for DRAM and NAND while maintaining flat wafer capacity. We expect that about 25 percent of our capital spending will be associated with facilities expansions and facilities upgrades needed for successful technology transitions,” said Dave Zinsner, Micron’s CFO during the earnings call.

“These expansion and upgrade projects are underway, and as a result, capex will be more weighted towards the first half of the fiscal year,” Zinsner continued. “Our strategy is to be flexible and disciplined regarding our capex, and we will be responsive to market conditions. As an example, we’ve cut back our fab equipment capex for NAND in fiscal 2019, compared to fiscal 2018 levels.”

CPU Shortages

Intel CPU shortages for both server and PC products also play a role in the DRAM supply chain.

Micron reported some impact from the CPU shortages in its FY first quarter, although demand remains strong in the computer market. Mehrotra said a few customers are making some limited inventory adjustments due to the shortage of CPUs. He expects the shortages to be short-term but also adds it could go beyond the first quarter.

Despite the shortages and cutbacks, Mehrotra said “end-market demand trends for DRAM and NAND continue to be strong.”

Micron reported that DRAM ASPs in its FYQ4 period were flat compared to the prior quarter, while shipments were up in the mid-to-upper single-digits percentage.

Before the CPU shortage, DRAMeXchange estimated that contract PC DRAM prices would fall by about 2 percent quarter over quarter in Q4 2018 as the market shifted into oversupply territory. Now combined with the shortage of Intel CPUs, it could lead to lower demand for notebooks and PC DRAM, resulting in a price decline of up to 5 percent.

A similar situation could happen in NAND flash. A lack of CPUs will lower expectations for notebook demand during the traditional busy season, impacting demand for solid-state drives (SSDs) in the second half. This will result in steeper price declines in Q4 compared to the previous quarter, according to DRAMeXchange.

A migration from the Grantley to the Purley platform is taking place in the server market but some server OEMs are experiencing longer lead times for the Purley processors, according to TrendForce. This could lead to further downward corrections in demand for server memory products, resulting in a further price declines for memory products overall.

In the server DRAM market, undersupply was significantly improved by Q3 as DRAM suppliers continued to increase the share of server DRAM in their product mixes, according to Wu. However, because server demand is uncertain and spot DRAM prices continue to fall in the channel, Wu expects DRAM prices to drop by 5 percent quarter over quarter, higher than the previous forecast of 2 percent.

Global notebook shipment projections are also down due to a shortage of Intel Whiskey Lake CPUs. “Intel originally planned to begin mass production of CPUs based on its latest Whiskey Lake platform in 3Q18, when the notebook market would be in the busy sales season,” said DRAMeXchange. “However, PC OEMs are now finding an insufficient supply of Whiskey Lake CPUs, which has disrupted vendors’ notebook shipment plans for this year’s second half.”

The CPU supply gap in the notebook market has increased from about 5 percent in August to as much as 10 percent in September, according to TrendForce. The forecast indicates that the supply gap could expand to more than 10 percent in Q4 before resolving toward the end of the first half of 2019.

DRAMeXchange also forecasts lower mobile DRAM prices in Q4 although new iPhones are expected to boost demand. But demand may be tempered by the iPhone’s high price tag. As a result, there could be an oversupply of mobile DRAM, said DRAMeXchange, leading to a price decline of about 3 percent for discrete solutions and up to an 8 percent decline of eMCP due to lower NAND flash pricing.

“Although 3Q18 is part of the traditional busy season, the demand growths of various end products are limited and not up to their usual seasonal levels. For instance, some smartphone brands and a few server manufacturers have marked down their shipment projections,” said DRAMeXchange. “Although end-product manufacturers as a whole are seeing a gradual drop in their DRAM inventories after posting shipment growths in this year’s first half, they are also noticing that the supply situation in the DRAM market is shifting from tight to loose.”

As a result, OEM buyers don’t see any urgency to replenish DRAM inventory as DRAM supply expands.

DRAMeXchange also projects that DRAM suppliers may need to lower prices in Q4 to maintain or increase their sales volume. “On the whole, suppliers are showing greater flexibility in their pricing strategies because they want to lock in the shipment volumes going into 2019 and capture more market share.”