TrendForce: 2HJan. 4GB Contract Price Rises, DRAM Makers’ Losses May Shrink

According to DRAMeXchange, a research division of TrendForce, 2H Jan. 2GB DRAM contract price remained flat, with average price at US$9.25. However, 4GB deals have already been concluded at a high of US$17.25, greater than 1H Jan.’s US$17, while the average stayed the same at US$16.5. This is an indication that 4GB module price growth momentum is stronger than that of 2GB modules, and overall concluded transaction price is noticeably headed towards exceeding average price. Based on the US$17.25 price, 2Gb single chip price is approximately US$0.9. DRAM makers further along in the 4Gb transition process are enjoying costs of US$1.81 per chip. Basing calculations on the mature 30nm process, production cost just about breaks even. At the current stage, DRAM manufacturers’ actual profitability and process migration progress are highly related, and both the shrinking of process technology and the transition to 4Gb single chip production play key roles in profitability.

In terms of the spot market, as the Chinese New Year holiday has just ended, there have been few concluded deals. Average 2Gb spot price is in the US$0.94-0.97 range, gradually closing the gap between spot and contract price. Whether spot price will continue to rise, thereby stimulating a contract price increase as well, will not be clear until further evaluation of Chinese New Year sales. However, according to TrendForce research, module makers who play an important role in the spot market are planning to slow inventory restocking to deal with possible DRAM price increases, which will provide substantial support for spot price.

DRAM Supply Price Increase Brewing, Weak Market Demand Remains an Uncertainty
DRAM industry oversupply was severe in 2011, causing long-term, weak DRAM prices. Besides the largest Korean manufacturers who stayed profitable, makers were unable to withstand the prolonged losses and had to react by not only lowering capacity utilization rates and attempting to decrease net cash outflow, but lowering this year’s capex figures as well – an indication of the extent of makers’ difficulties. Benefitting from 4Q11 PC DRAM production cuts that amounted to approximately 20% of total capacity, TrendForce expects the DRAM oversupply ratio to improve significantly, decreasing from the original 16% to 10%, the healthiest figure in the past year. DRAM makers are becoming inflexible in terms of price quotes, as stabilizing and gradually increasing DRAM price is tacitly understood as a shared industry goal. Many DRAM manufacturers have set a minimum for price quotes, which not only prevents DRAM price from falling further, but encourages buyers to increase purchase volume for each order. Some makers are even actively negotiating with buyers to set shipment volume and price on a quarterly basis. DRAM suppliers are gradually employing more rational policies to deal with price changes, which is expected to have a positive effect on price stability.

However, whether or not the supply-side adjustment is fully effective will depend on support from the demand end. According to TrendForce research, as the market is currently in the slow season and there is a lack of momentum for PC upgrades, total notebook shipment volume is expected to decrease by a considerable 9.7% QoQ, likely the lowest quarterly demand for the year. Furthermore, although the market is bubbling with rumors of impending DRAM price increases, in order to save on key component production cost PC OEMs are not likely to increase content per box – instead, they are turning towards the spot market. Affected by the decrease in business days in January, concluded transaction volume was as expected, with purchasing volume low. As for February, buyers are still biding their time as they are highly concerned about the demand situation. In light of this, currently DRAM makers are continuing their technology migration efforts, but there has been no news of manufacturers increasing capacity utilization rates to increase production. Taking both supply and demand into consideration, there is limited possibility of DRAM price exhibiting a V-shaped curve. DRAM makers are all treading thin ice when it comes to product planning, carefully maintaining price and trying to make it through the weak first quarter to the more optimistic second half of the year.