DRAM Prices Drop 30%, Exceeding Q1 Forecasts

PC and server DRAM prices have plummeted by nearly 30 percent so far in the first quarter of 2019, according to DRAMeXchange, a division of TrendForce. This is a deeper plunge than the projected drop of 25 percent expected last month and is the sharpest tumble since 2011. At the same time, most contracts have transitioned from quarterly to monthly deals.

DRAMeXchange analysts also were surprised with the large downward price correction in February. Avril Wu, senior research director for DRAMeXchange, told EPSNews that PC DRAM prices fell around 14 percent month-over-month (MoM) in February.

In January, contract prices of DRAM products across all major markets dropped by more than 15 percent MoM, which followed a downward trend into February and March. The average prices for mainstream 8-GB modules, as an example, fell to $50 in January, and are expected to continue dropping by as much as 30 percent in the first quarter overall.

This is a much steeper decline than what was initially forecast by DRAMeXchange in the fourth quarter of 2018. Analysts only expected a price drop of about 10 percent in the first quarter, which was already raised from a 5-percent decline. This was attributed to increased supply, high inventory levels and a looming trade war between the U.S. and China.

The contract price of 32-GB server DRAM is forecast to drop to $170 to $180 by the end of March with the average contract price in the first quarter of 2019 dropping by 28 percent quarter-over-quarter (QoQ) to $205, reported Hyundai Motor Investment & Securities.

“Considering that excessive server DRAM demand from data centers is responsible for DRAM’s big cycle, the current DRAM price level is low enough to drive DRAM buyers to increase their inventories.”

However, the firm expects that data center investments will likely resume after Intel releases its Cascade server CPU in the second quarter of 2019. Until then, server DRAM prices will continue to decline into the second quarter.

Looking ahead, Wu expects PC DRAM prices to drop nearly 20 percent QoQ in the second quarter of 2019. “Server DRAM prices will drop almost 30 percent QoQ in the first quarter. For the second quarter, we expect a 15 percent to 20 percent price decline.”

The price declines for mobile DRAM haven’t been as dramatic as PC and server DRAMs. “Mobile DRAM prices will decline mid-teens QoQ in the first quarter, and we expect a quarterly decline in the low teens in the second quarter of 2019,” added Wu.

Inventory levels have kept climbing since the overall contract prices dropped in the fourth quarter of 2018, with most DRAM suppliers currently holding about six weeks' worth of inventory (wafer banks included), said DRAMeXchange. This means with high inventory levels at suppliers, prices will continue to correct.

Similar to the first quarter, Wu believes prices for PC DRAM and server DRAM will decline the most among all application markets in the second quarter. She expects high inventory levels and weak demand will persist in the second quarter.

In the second half of 2019, DRAMeXchange expects constrained growth in demand due to political and economic uncertainties. Analysts also believe the price downswing will moderate over the next several quarters.

“Although there are new sources of demand related to 5G, AIoT, IIoT, and automotive electronics, these application markets are still in the nascent stage of development and will not have much influence on the DRAM market in 2019,” said DRAMeXchange.

Contributing to the DRAM market’s woes is Intel’s low-end CPU supply shortage, which is forecast to last until the end of the third quarter of 2019. Without the CPUs, PC OEMs aren’t building product, and they aren’t consuming DRAM chips.

DRAMeXchange said the overall DRAM market has entered into a freefall. Even large reductions in prices aren’t going to drive sales, said analysts.

Despite the current market conditions, the big three DRAM suppliers are still investing in new manufacturing and aren’t expected to lose their market share any time soon, said DRAMeXchange. SK Hynix plans to invest 120 trillion won (around $107 billion ) to build four new wafer fabs, and Samsung is currently building a second fab at Pyeongtaek, while Micron has started construction of an IC testing and packaging plant in Taiwan.

In addition, Micron’s subsidiary Micron Memory Taiwan (formerly Rexchip) in Houli, Taichung, is considering building a new 12-inch DRAM wafer fab, which could finish construction as early as the end of next year. The facility will significantly contribute to production in 2021, said DRAMeXchange.