In response to the rise in worldwide shipments and memory content per box for smartphones, DRAM suppliers since the second quarter have gradually reduce their output of PC DRAM while increasing their server and mobile DRAM production. Consequently, prices of PC DRAM started to rise in the third quarter as supply tightened. The price hike for PC DRAM also pushed up prices for DRAM in other applications at the same time. According to DRAMeXchange, a division of TrendForce, global DRAM revenue for the third quarter rose about 15.8% sequentially on account of this recent price uptrend.
“The third quarter saw a surge of stock-up demand as Apple and Samsung prepared to expand shipments of their flagship smartphones,” said Avril Wu, research director of DRAMeXchange. “Even though Samsung later had to suspend the production of Galaxy Note 7, the company contributed significantly to the increase in both consumption and prices of DRAM in the third quarter.”
The PC DRAM market has also benefitted from the better-than-expected notebook shipments in the recent period. “The shipment share of notebooks equipped with 8GB of RAM has risen as well,” Wu added. “Hence, the average contract price of PC DRAM is projected to increase by more than 30% sequentially in the fourth quarter of 2016.”
Three major suppliers posted large revenue gains and Micron made a turnaround in profit
Samsung led the third-quarter revenue ranking with an sequential quarterly increase of around 22.4%, which was much higher compared with second-largest supplier SK Hynix. Respectively, Samsung and SK Hynix now represent 50.2% and 24.8% of the global DRAM market. Together, the two South Korean DRAM suppliers control about 75% of the global market. U.S.-based Micron remained No. 3 in the revenue ranking, posting a sequential quarterly growth of 12.6% and holding on to 18.5% of the global market.
Looking at suppliers’ operating margins, Samsung was again the leader in the third quarter by keeping its operating margin at 37%. SK Hynix saw a rise from 18% in the second quarter to 25% in the third quarter. Micron’s operating margin for the third quarter was 2.3%, a significant turnaround from the negative 0.6% in second quarter.
“Further increases in suppliers’ operating margins are expected for the fourth quarter on account of rising DRAM prices,” noted Wu.
Powerchip posted a large 31.1% sequential decline in revenue
In terms of technology, Samsung is the industry leader in the 20nm manufacturing and has the lowest production cost among the three major suppliers. “Samsung’s new fab Line 17 has started DRAM production on the 18nm process in the second half of 2016,” said Wu. “However, Samsung is still pondering whether to continue expanding its 18nm production due to the concern about the technology’s effect on the profit margin.”
In the third quarter, SK Hynix found that the output from its 21nm process was lower than expected. This in turn added more strain the global DRAM supply. SK Hynix therefore is now focusing on improving the yield rate on its 21nm process. Also, the supplier plans to move forward technologically and test its 18nm process during the second half of 2017.
Micron now mainly relies on the 20nm process to produce DRAM after its subsidiary Inotera made a complete transition to this technology in September. Micron also aims to begin mass production on its 18nm and 16nm processes during the 2017~2018 period.
Among Taiwan-based DRAM suppliers, Nanya’s revenue grew 16.7% sequentially in the third quarter due to rising PC DRAM prices and additional orders from clients. Next year, Nanya will complete the construction of its newest production facility Fab 3A North and begin migrating to the 20nm process. Hence, the company will be able to further reduce production cost at that time.
Powerchip’s third-quarter DRAM revenue registered a large sequential decrease of 31.1%. This weak performance was the result of the supplier’s decision to reduce PC DRAM output in the third quarter after experiencing falling prices in the second quarter. Powerchip’s PC DRAM production has returned to its previous level in the fourth quarter and the company is expected to register revenue growth again due to rising prices.
Winbond’s third-quarter revenue grew by 7% sequentially. The supplier continues to increase the share of the 46nm process in the total output and will start producing on the 38nm process on a limited scale in the fourth quarter. Winbond is expected to post revenue growth again in fourth quarter due to rising prices of specialty DRAM products.