TrendForce：DRAM Demand Concerns Emerge as Price Declines, Industry to See Capacity Cuts in 2H12

As DRAM contract price fell below the US$20 mark in July, the forecast for yearly PC shipment growth has been adjusted from 3.3% down to -0.3%, and the global economic outlook is bleak for the second half of the year, the DRAM industry is preparing for winter with another round of capacity cuts. According to DRAMeXchange, a research division of TrendForce, Elpida and subsidiary Rexchip announced the first reductions in August; capacity at Elpida’s Hiroshima fab has been adjusted downwards from 90K to 80K, while Rexchip’s will be 65K, down from 75K, amounting to a total decrease of around 20K. Such a small reduction will not benefit the industry much, as global capacity is currently at 1100K wafers per month.

Breaking down the analysis by manufacturer, as Samsung is profiting in both the mobile and server DRAM sectors, it will be able to maintain a capacity of around 360K. SK Hynix is also undaunted by the coming winter, and will increase capacity at its M12 fab to around 20K, manufacturing solely 30nm products, by the end of the fourth quarter.

In Taiwan, suppliers are seriously considering capacity cuts; Powerchip currently has 45K commodity DRAM capacity, but is in discussion with clients to bring capacity down to 20K or so. The Micron group’s Nanya and Inotera previously reduced production in 4Q11, when 4GB module price fell to a low of US$16; as July contract price is heading in that direction and Nanya and Inotera’s cost structure is not as competive as other manufacturers’, it is possible the makers will activate capacity cuts in the second half of the year.

TrendForce analysts indicate, as the majority of products from DRAM makers currently planning capacity cuts is sold on the spot market, the impact to the spot market will be significant; the contract market, however, will remain largely unchanged. In order to achieve balanced supply and demand, total industry capacity must be lower than 1000K, which means a total of 100K wafers per month must be cut. If DRAM makers do not cut capacity as a whole, suppliers with less competitive cost structures may end up withdrawing from the market in second half of the year.