Intel and AMD will be releasing new CPUs that support DDR5 DRAM solutions for PCs and servers this year. In response, the DRAM industry led by South Korean suppliers is developing solutions to complement the arrival of the new CPUs. In the midst of the gradual shift to DDR5, DRAM suppliers will also scale back the supply of DDR3 solutions, according to TrendForce’s latest investigations. With Korean suppliers accelerating their withdrawal from DDR3 production, Taiwanese suppliers yet to kick off mass production using newly installed capacities, and Chinese suppliers falling short of their expected yield rate, the global supply of DDR3 solutions will undergo an impending decline. With respect to the demand side, however, not only has the supply of networking chips been ramping up, but material shortage issues are also gradually easing. As such, buyers are now procuring DDR3 solutions ahead of time, resulting in a tight supply and demand situation in the DDR3 market. TrendForce therefore expects DDR3 DRAM prices to recover from a bearish first quarter and undergo a 0-5% QoQ increase in 2Q22.

On the supply side, Samsung and SK hynix have begun scaling back their DDR3 production while also planning to declare EOL (end of life) for their DDR3 offerings, such as 1/2Gb and 4Gb chips. It should be noted, however, that Micron’s DDR3 solutions will not reach EOL even by 2026, meaning the company will still offer DDR3 solutions long after its two Korean competitors have stopped doing so, according to TrendForce’s understanding. Also worth noting is that Micron is migrating its DDR3 production to a US-based fab that mainly manufactures specialty DRAM solutions. Nevertheless, since this fab’s production capacity will be divided between products for consumer and automotive applications, TrendForce believes that the aforementioned migration will tighten Micron’s supply of consumer DRAM solutions because the US fab will give priority to automotive DRAM solutions that offer a higher gross margin and are currently enjoying surging demand.

Although Taiwan-based DRAM suppliers that focus on promoting DDR3 solutions, namely, Nanya Tech and Winbond, are in the process of capacity expansion, their new production lines will not be operational until 2023-2024. Hence, the contribution from the newly added capacities is not expected to drive up DDR3 supply substantially this year. Chinese suppliers, including CXMT and GigaDevice, are continuing to collaborate in DDR3 development, though their capacity increases and yield rate improvements have both fallen short of market expectations. After being added to the Entity List, JHICC, yet another China-based DRAM supplier, is now dealing with severe restrictions with respect to procuring equipment, making it difficult for JHICC to raise its wafer input. Furthermore, the company has no spare resources that can be allocated to R&D and pilot runs. As a result, JHICC still primarily manufactures DDR4 4Gb chips at its initial 25nm node, with no DDR3 production at the moment.

With regards to demand, DDR3 consumer DRAM is primarily used in end-devices such as STBs and networking products (e.g., GPON, routers, and modems), which do not require high-performance SoCs. While the foundry industry suffered a severe shortage of wafer capacities allocated to logic ICs in 4Q21, production capacities for relatively low-margin chips were noticeably impacted in turn. Along with a preexisting component mismatch situation, most manufacturers found themselves unable to assemble end-devices. Moving into early 2022, however, the supply of certain materials, including those used in foundry operations, saw a gradual improvement. As various components needed for device manufacturing became available after Lunar New Year, certain buyers have once again kicked off their consumer DRAM procurement activities.

In addition, DRAM spot prices shifted from a prior decline to a strong upturn at the end of last year as the Chinese government ordered a month-long lockdown in Xi’an. The ensuing price hike, which has lasted for two months, subsequently led buyers to procure even more DRAM ahead of time in anticipation of further price hikes. Hence, although the demand for end-products has yet to make a full recovery, buyers are now slowly and steadily procuring consumer DRAM in order to avoid either higher upcoming prices or even an inability to secure consumer DRAM inventory.

The pandemic has impeded the supply of many end-user devices such as smartphones, servers, PCs, and niche consumer electronics components, indirectly leading to a decline in a willingness on the procurement-end to stock relatively abundant memory chips, according to TrendForce research. This is most obvious in the stance of PC OEMs holding more than 10 weeks or more of DRAM inventory. Therefore, most DRAM fabs experienced a drop in shipments in the fourth quarter of 2021 and declining purchasing momentum has also led to a downward trend in DRAM price quotations. Total 4Q21 DRAM output value decreased by 5.8% QoQ, reaching US$25.03 billion, with only a few suppliers such as SK hynix bucking this trend.

Looking forward to 1Q22, although material shortages for some components can be alleviated, the first quarter is already an off season for demand and buyers’ inventories are still flush. Thus, the purchasing-side will largely concentrate on destocking, with overall purchasing momentum remaining sluggish. Thus, DRAM pricing in the first quarter of this year is expected to face greater pressure than in the fourth quarter of last year and overall DRAM output value may fall further.

4Q21 DRAM price drop causes downturn in manufacturer profit levels

In terms of revenue performance, price quotations from the three major DRAM manufacturers all declined with slightly differing shipments trends. Shipments from both Samsung and Micron fell due to poor end-user demand, with revenue down 9% and 8%, respectively. In terms of market share, Samsung dropped slightly to 42.3% while still ranking first, SK hynix climbed to nearly 30%, ranking second, and Micron dropped slightly to 22.3%.  Pricing gaps between these three DRAM manufacturers in 1Q22 is expected to be narrow, but since SK hynix had a relatively high base period of shipment in the 4Q21, the company expects a decline in its shipments slightly higher than the industry average which will reduce its 1Q22 market share slightly.

In terms of profit performance, the operating profit margins of Samsung, SK hynix, and Micron (September-November financial reporting) fell to 50%, 45%, and 41%, respectively, due to the cost optimization resulting from an increase in the proportion of advanced processes not being  enough to make up for the decline in price quotations. TrendForce believes that the downturn trend in profit margins is likely to intensify in 1Q22 and DRAM suppliers will face sharper profit decline. Manufacturers can only increase the proportion of advanced processes and optimize their product portfolio to reduce the impact brought on by price pressure.

Specialty DRAM market conditions also weak in 4Q21, with Taiwanese manufacturer revenue falling as well

As the demand for specialty DRAM end-user applications such as TVs and consumer electronics products dropped significantly in 4Q21, coupled with the impact of material shortages in the supply chain, client demand for DRAM shipments also cooled substantially. The 4Q21 specialty DRAM price decline was also comparable to that of mainstream products, in turn impacting the revenue performance of Taiwanese manufacturers focused mainly on the consumer market. From the perspective of Nanya Tech, the combination of falling volume and price reduced its revenue in 4Q21 by approximately 10%, while its operating profit rate fell to 37.5% due to the decline in price quotations. Winbond’s small-capacity (1/2Gb) market was also affected by components mismatch issues, but the impact was relatively small and its 4Q21 revenue fell slightly by close to 4%. PSMC’s (revenue calculation is primarily based on its self-produced standard DRAM products and does not include its DRAM foundry business) revenue fell slightly by approximately 1%. If its foundry revenue is added, then its revenue grew by 6%, reversing a downward trend. This demonstrates that locking-in long-term contracts early is a good strategy.

Faced with reversal in the DRAM market, it is TrendForce’s understanding that the solutions of the three major Taiwanese manufacturers are as follows: Nanya Tech can allocate 20nm production capacity to produce DDR3 (better gross profit) when DDR4 market conditions are poor and invest more resources in the research and development of new 1X nm processes.  If yield improves rapidly, this will provide some contribution before the completion of its new factory in 2024. In addition to continuing to focus on niche small-capacity products, Winbond is also strengthening research and development of 25 nm and next-generation 20 nm products, expected to be introduced directly when its Kaohsiung Lujhu factory starts mass production. As for PSMC, by locking clients into long-term contracts, it can plan 2022 production in advance and continue to maximize its greatest advantages. In accordance with market conditions and gross profit levels, it will allocate production capacity between logic IC and memory products.

Driven by forces such as the pandemic, geopolitics, and the digital transformation of everyday life, there has been a shortage of global foundry production capacity for nearly two years and shortages have been especially severe for mature 1Xnm~180nm nodes, according to TrendForce’s investigations. Although all foundries are furiously increasing capital expenditures to expand capacity, unrealized future expansion does not ease existing supply issues. In addition, the uneven distribution of supply chain resources that has exacerbated the shortage of parts and components has yet to be definitively alleviated. Circumstances as a whole will continue affecting shipments of related whole devices. Only the PC category is expected to emerge largely unscathed in 1Q22.

Moving into 1Q22, TrendForce states, due to the limited increase in production capacity, the market’s supply situation is expected to be approximately the same as in 4Q21. However, some end products have entered their traditional off-season cycle and the slowdown in demand momentum is expected to alleviate the immediate pressure on OEMs and ODMs regarding supply chain stocking.

In terms of the whole servers, the FPGA delivery cycle is currently at over 50 weeks at most, while the delivery cycle of Lan chips has improved significantly, from the original 50+ weeks to approximately 40 weeks. However, escalating purchase order activity caused by the uncertainty of the pandemic combined with an accumulated backlog of demand (Back order/backlog) have pushed the SMT capacity of ODMs to full load in general. The aforementioned phenomenon have not only accelerated the consumption of ICs such as FPGA and PMIC, but the demand for additional purchase orders of FPGA, PMIC and MOSFET is still compelling. The overall market remains tight and the production of server motherboards in the future may face hidden issues. TrendForce has ascertained a more crucial matter. Taking the L6 server as an example, its production scale in 1Q22 will be roughly the same as the previous quarter. However, whole server shipments will show a seasonal decline with a decrease of approximately 8% QoQ.

In terms of mobile phones, material shortages have gradually eased from the second half of 2021 partly due to the discretionary adjustment of mobile phone specifications. Mobile phone brands can adjust their specifications and configurations based on available materials. Currently, the supply of four components remains relatively tight. Among them, 4G SoC (30-40 weeks) and OLED DDIC/Touch IC (20-22 weeks) have a significant impact on the market. The former will affect brands that focus on selling 4G mobile phones. The latter is affected by oligopolistic market structure and the adjustment of foundry capacity. Thus, there are rumblings of insufficient supply. Though the supply of the remaining two items, PMIC and A+G Sensor, remains tight, material shortage risk can be largely mitigated through alternative material replacements or the adjustment of specifications and configurations. In terms of production, the 1Q22 supply chain will essentially carry on its performance from the previous quarter. However, due to disappointing holiday demand at the end of 2021, mobile phone brands must adjust the distributed inventory level of finished products in a timely manner. Combined with uncertainty caused by disruptions stemming from a winter-time pandemic, 1Q22 production performance is estimated to fall by approximately 13% QoQ.

In terms of PCs and laptops, starting from November 2021, material shortages have been partially alleviated. Therefore, the shipment volume of PC ODMs in 4Q21 has been revised upwards. Compared with mobile phones and whole servers, the impact of under/oversupply of materials on end PCs and notebooks is relatively minor. Except for the SSD PCIe 3.0 controller, current tightness exhibited in component supply is due to delays in the transition of Intel’s new platform. This temporary shortfall has led to a delivery cycle of approximately 8-12 weeks while any tightness in the supply of Type C IC, WiFi, and PMIC is gradually abating. TrendForce expects that, as overall supply chain stability recuperates, notebook shipments from ODM brands in 1Q22 will only decrease by 5.1% QoQ. However, if the component shortage factor is discounted, subsequent sales originating from various distribution channels will be another major variable TrendForce must consider.

For more information on reports and market data from TrendForce’s Department of Semiconductor Research, please click here, or email Ms. Latte Chung from the Sales Department at lattechung@trendforce.com

An earthquake that was around magnitude 6.0 on the Richter scale occurred off the east coast of Taiwan at 5:46PM local time on January 3, 2022. As most local DRAM and foundry fabs are located in the northern and central parts of the island, TrendForce’s latest investigations reveal no notable damages to the equipment from the fabs. Therefore, the production side is expected to continue normal operation, and the actual impact of the earthquake on the output of Taiwan’s DRAM and foundry industries will likely be limited. Taiwan’s memory fabs, including those operated by MTTW, Nanya, and other smaller semiconductor companies, collectively account for about 21% of the global DRAM production capacity. In the foundry industry, Taiwan’s fabs, including those operated by TSMC, UMC, Vanguard, PSMC, etc., together make up as much as 51% of the global production capacity.

Regarding the current state of the DRAM market, it is in midst of the conventional off-season. However, the recent easing of component gaps in the supply chain is generating some stock-up activities in different application segments and thus bolstering the overall demand. The headwinds of the off-season are not as strong as usual. Also, there are now concerns brewing in the wider memory market about the supply side being affected by the COVID-19 lockdown in the Chinese city of Xi’an. Consequently, memory spot prices have been registering daily hikes lately. It is worth noting that increases in DRAM spot prices have been more significant than the increases in NAND Flash spot prices. Regarding DRAM contract prices, TrendForce for now maintains its original forecast of QoQ drops in the 8-13% range for 1Q22. However, the latest earthquake that struck Taiwan could affect DRAM buyers’ behavior at any time. How contract prices will actually end up is something that requires further observation. As for DRAM spot trading, the memory spot market of Mainland China was still in midst of the year-end holiday on January 3. Hence, spot traders were passive for the most part. TrendForce will continue monitoring the spot market to see if the earthquake is going to be a positive driver going forward.

Turning to the current state of the foundry market, the chip demand related to some categories of end products has slowed down a bit recently because of seasonality. However, demand remains quite strong for chips that were previously in short supply, such as PMIC, Wi-Fi SoC, etc. Foundry fabs on the whole are still operating with a fully loaded capacity because demand continues to outstrip supply. The fabs of Taiwan-based foundries, including TSMC, UMC, PSMC, and Vanguard, are concentrated in Hsinchu, Taichung, and Tainan. In those places, an earthquake intensity scale of 3 or under was recorded. As such, no foundry fab in Taiwan has halted operation because of the earthquake, and all fabs are operating normally at the moment.

For more information on reports and market data from TrendForce’s Department of Semiconductor Research, please click here, or email Ms. Latte Chung from the Sales Department at lattechung@trendforce.com

Regarding the shipment of various end products in 4Q21, the quarterly shipment of notebook computers is expected to remain about the same as 3Q21 figures, as prior component gaps were partially resolved during the quarter, according to TrendForce’s latest investigations. As such, since PC OEMs’ DRAM inventory has lowered by several weeks, TrendForce has also further reduced its forecast of DRAM price drops for 1Q22. Even so, the overall demand for DRAM will still enter a cyclical downturn in 1Q22, during which DRAM ASP will also maintain a downward trajectory with an 8-13% QoQ decline. Whether this price drop will subside going forward will depend on how well suppliers manage their inventory pressure and how DRAM purchasers anticipate further price changes.

Decline in PC DRAM prices will narrow somewhat as PC OEMs reduce inventory

Whereas demand for Chromebooks has noticeably slowed down, demand for consumer and commercial notebooks remains strong. Furthermore, certain components which were previously in shortage are starting to experience improved lead times. Hence, quarterly shipment of notebook computers for 4Q21 will likely surpass earlier projections. Looking ahead to 1Q22, not only will the demand side undergo a cyclical downturn, but the sufficiency ratio of PC DRAM will also surpass 3.0% following 4Q21’s high base period for comparison. These factors will result in DRAM prices undergoing a noticeable decline, although PC OEMs will carry a lower inventory of DRAM in 1Q22 compared with 11-13 weeks of inventory in the previous quarter, thereby helping to curb the price drop of PC DRAM products. On the other hand, as mobile DRAM prices begin to drop, certain DRAM suppliers have begun reallocating some of their production capacities from mobile DRAM to PC DRAM. As a result, PC DRAM bit supply will likely undergo a corresponding increase in the short run. In sum, although the above factors are able to provide some upside momentum that narrows the price drop of PC DRAM products, they are not enough to result in an upturn. In particular, DDR4 and DDR5 PC DRAM will experience QoQ declines of 5-10% and 3-8%, respectively, for 1Q22, although the latter product will not noticeably impact the overall PC DRAM ASP, as its penetration rate is still relatively low.

Server DRAM prices will decrease by about 8-13% QoQ due to slowdown in procurement activities

At the moment, CSPs and enterprise clients are carrying about 6-9 weeks and 8-10 weeks of server DRAM inventory, respectively. Although these levels represent a slight decline compared to the end of 3Q21, this decline will not substantially contribute to an increase in demand. Hence, server DRAM buyers will remain relatively conservative with regards to procurement activities before server DRAM prices reach a level that these buyers consider to be rock bottom. DRAM suppliers’ inventory of server DRAM, on the other hand, has been gradually rising in 1H21 owing to decreased demand. Furthermore, certain suppliers have ramped up their wafer input for server DRAM products, leading to an increased production. In addition, while both buyers and sellers have reached a consensus on the falling prices of server DRAM, supply chain-related component gap issues have become gradually resolved, meaning Tier 1 clients will lessen their server DRAM procurement in the upcoming off-season. As a result, suppliers will then be able to fulfill orders that were placed by Tier 2 clients but previously deferred because suppliers prioritized orders from Tier 1 clients. These Tier 2 client orders will provide some upside demand for server DRAM, which is a component that is in relative surplus compared to other components. TrendForce therefore expects server DRAM prices to decrease by 8-13% QoQ in 1Q22, during which server DRAM prices will experience the most severe declines compared to the other quarters in 2022.

Mobile DRAM prices will decline by about 8-13% QoQ in light of intensifying oversupply

Thanks to mobile DRAM suppliers’ aggressive sell-offs in 4Q21, smartphone brands still carry a high level of mobile DRAM inventory as of the end of 2021. Looking ahead to 1Q22, not only will the market welcome the arrival of the traditional off-season, but other issues with the supply of processor chip bundles and the impact of the COVID-19 pandemic will also result in a 10% QoQ drop in smartphone production for the quarter. Smartphone brands will become even more careful with respect to their procurement activities so as to avoid continually accumulating inventory. As smartphone brands revise down their production targets, market demand for mobile DRAM has therefore become weaker now than it was in 1H21, in turn exacerbating the oversupply situation, which is reflected in the persistently rising mobile DRAM inventory of DRAM suppliers. On the whole, the aforementioned issues of high inventory levels and oversupply situation will lead smartphone brands to further conservatize their production and procurement plans in 1Q22. Given that suppliers have suggested a sales strategy of negotiating for 4Q21 and 1Q22 prices collectively, and both buying and selling sides are confronted with inventory pressure, TrendForce thus forecasts an 8-13% QoQ decline in mobile DRAM prices for 1Q22.

Graphics DRAM prices will hold flat while demand improves and spot prices rises ahead of time

The application demand for graphics DRAM has been recovering noticeably in the recent period. Even so, it is worth pointing out that the graphics DRAM market is subject to a very high degree of fluctuations, and this situation is exacerbated by the introduction of the application demand from cryptocurrency mining in recent years. Because the values of cryptocurrencies can swing dramatically, GPU manufacturers such as NVIDIA and AMD have to constantly adjust their sales strategies and switch between bundling and de-bundling. In so doing, they are contributing to the rapid rise and fall of graphics DRAM demand. The graphics DRAM products that the three dominant suppliers are now producing belong to the GDDR6 series. The latest distribution of graphics DRAM output by chip type shows that suppliers are also gradually shifting their focus from 8Gb to 16Gb. Micron, in particular, is the most proactive in this transition. On the other hand, the mainstream graphics cards are still using 8Gb chips at this moment, so the demand for 8Gb graphics DRAM chips has actually increased. In addition, spot prices of both GDDR5 8Gb and GDDR6 8Gb chips have experienced huge price hikes. Due to this uptrend in spot prices, the difference between spot and contract prices is now negligible for graphics DRAM. Some spot transactions even reveal prices that are higher than contract prices. This latest development reflects the situation where buyers are more proactive in price negotiations. Prices of graphics DRAM products on the whole will be fairly constrained from declining further due to the rise in spot prices, the aforementioned demand turnaround, and Micron’s decision to scale back production for 8Gb chips. Taking these factors into account, TrendForce expects that the overall price trend will stay mostly flat.

DDR3 Consumer DRAM prices will drop by about 3-8% QoQ despite reduced supply

The demand for consumer (specialty) DRAM is expected to be relatively weak in 1Q22 due to the effect of the traditional off-season for consumer electronics. Also, demand will stay fairly depressed for TVs, which represent the leading source of in-home entertainment spending. This is because countries around the world will continue in their attempts to lift their pandemic-related restrictions. In addition to these factors, component gaps in the supply chain will still be a serious challenge for device manufacturers. As DRAM components are in excess supply relative to non-memory components, device manufacturers will be less willing to stock up on the former. Suppliers have been slow to scale back production for DDR3 products this year because prices of DDR3 products surged during the first half of the year. However, the downward pressure on prices has now become much more significant, so the two leading South Korean suppliers have taken the initiative to revise their product mix strategies. Hence, they will again transfer more of their mature wafer processing capacity from DDR3 products to CMOS image sensors or logic ICs. Turning to price trend, TrendForce points to the strong correlation between DDR4 consumer DRAM products and PC DRAM products. The latter were the first to experience a weakening of demand, and their prices have already made a downward turn in 4Q21. Looking ahead to 1Q22, contract prices of PC DRAM products will keep falling because of their significant difference with spot prices. This means that DDR4 consumer DRAM products will also suffer sliding prices for 1Q22 with QoQ declines reaching 5-10%. Looking at DDR3 consumer DRAM products, their prices will also drop even as their supply is shrinking. Contract prices of DDR3 2Gb chips are projected fall by 3-8% QoQ on average for 1Q22, whereas DDR3 4Gb chips are projected to register larger declines.

For more information on reports and market data from TrendForce’s Department of Semiconductor Research, please click here, or email Ms. Latte Chung from the Sales Department at lattechung@trendforce.com