According to DRAMeXchange, a research division of TrendForce, after decreasing for the first time this year in 1HJul., the DRAM price downtrend continued in 2HJul., with average 4GB chip price falling to US$19.75 and lowest traded price arriving at US$19.5. 2HJul. average 4GB price decreased by 2.5% compared to the first half of the month, while 4GB price for the month of July fell by 7% compared to the previous month. As a result, DRAM manufacturers whose products are mostly manufactured on 40nm process technology are seeing losses. Following in the footsteps of 4GB modules, 2HJul. average 2GB module price showed the first drop of the year, arriving at US$10.75.
Heading into the third quarter, the demand outlook is unfavorable and the peak sales season will inevitably fall short of expectation. PC ODM shipments show no reflection of back-to-school demand, and Windows 8 will provide the only demand stimulation in the second half of the year. However, as the release of Windows 8 is still three months away, this DRAM price downtrend is not likely to see recovery anytime soon; it is highly likely August contract price will continue to fall. Aside from the Korean memory makers, manufacturers in the DRAM industry have been experiencing losses for some time. Thus, the latest price downtrend may initiate another round of capacity cuts – which would hopefully prevent further cannibalization of makers’ already meager cash flow – as balanced market supply and demand can only be achieved via supply-side adjustments. Looking towards the future, PC shipment growth will only continue to slow, and figuring out how to adjust capacity in response to shrinking demand will be the greatest challenge DRAM makers face this year.
Server and Mobile Memory Both See Price Decline as Market Competition Heats Up
Looking at the PC market, 2012 shipments may see negative growth for the first time in recent years, due to both the rise of tablets cannibalizing notebook shipments as well as the negative impact of weak economies on consumer confidence; neither the consumer nor commercial sector has seen an upgrade cycle in years. Although a portion of PC OEMs have been conservative towards 2012 shipments since the beginning of the year, recently manufacturers have been lowering shipment targets even further. Thus, TrendForce has adjusted the yearly PC shipment forecast for 2012 to -0.3%, down from the initial 3.3% projection, which is expected to worsen oversupply on the memory market once again.
While weak PC shipments will undoubtedly result in PC DRAM price decline, average selling price (ASP) for server DRAM, which is similar in nature to PC memory, will fall as well. July server DRAM price for mainstream 8GB R-DIMM saw a 2-4% decrease, an indication of fierce supply-side competition. Mobile memory is experiencing much of the same; since the beginning of the year, mobile DRAM ASP has been on a continuous downtrend. Lowest price for 2Gb LPDDR was US$2.75 in July; while still more than twice as high as PC DRAM’s US$1.1 ASP, profits are shrinking and competition is harsh in the mobile memory sector. Manufacturers’ initial plans to adjust production in favor of non-PC DRAM no longer seems like the best strategy.
Although sluggish economies worldwide have certainly contributed to the heavy losses sustained by the DRAM makers in the past few years, the main issue for the memory industry is the inability to effectively consume current levels of production capacity. With the Micron and Elpida merger, the DRAM market is now an oligopoly with three leading memory makers, which should reduce price competition. However, as not a single DRAM maker has announced capacity cuts or other long-term adjustments to DRAM production levels, 2012 revenues will likely shrink. Even with advanced process technology, new products, and the latest packaging technology, cost savings are far from enough to balance out losses from price decline caused by oversupply; the rapid evolution of technology actually contributes to supply problems. As such, the future of the DRAM industry will likely see slower technology migration, capacity cuts, and shrinking capex figures, as bit growth shows a negative correlation to profitability in today’s DRAM market.