TrendForce：DRAM Industry to Turn New Leaf in 2013; Server and Mobile DRAM Production Ratio to Exceed 40%

According to DRAMeXchange, a research division of TrendForce, the commodity DRAM yearly output ratio has been on a downtrend due to changes in market demand. This year, total commodity DRAM production fell below 50% for the first time, and the category showed the weakest profitability. As for non-commodity DRAM, server and mobile memory has benefitted from the rise of cloud services and the widespread use of handheld devices. TrendForce indicates, server and mobile DRAM output will account for more than 40% of total DRAM production in 2013, replacing commodity DRAM as the mainstream memory on the supply side.

PC DRAM price began declining in July 2012. Although the DRAM market is on the road to becoming an oligopoly, some DRAM manufacturers have yet to find outlets for excess capacity. In order to maintain capacity utilization rates, some makers continue to focus on commodity DRAM production, which has resulted in the severe imbalance in supply and demand for the second half of 2012. Taiwanese DRAM makers are showing the greatest losses, as they have limited market share when it comes to the server and mobile memory sectors; the manufacturers are at a far higher risk than other makers due to their high commodity DRAM ratio, and will soon have no choice but to reallocate capacity or back out of the market. TrendForce expects the industry will see another wave of large-scale capacity cuts in the near future, as there is a gross discrepancy in the cost structures of different makers. Commodity DRAM output is expected to fall below 40% in 2013, while bit shipments will shrink next year and yearly PC DRAM production will decrease for the first time ever.

Cloud Computing Stimulates Server Builds; Content per Unit Over 50GB in 2013

Taking a closer look at server DRAM, as it is difficult to break into the market, the bulk of the server memory sector is dominated by top-tier DRAM makers. In terms of revenue, Samsung semiconductors takes over 60% of the market, while SK Hynix and Micron come in second and third, respectively. On the market, numerous module makers are fighting tooth and nail for small to medium business bids; the oligopoly status is even more noticeable on the sever memory market than in the commodity DRAM sector. Looking at historical pricing, as server product design and packaging is similar to that of PC DRAM, the server and commodity DRAM price trends generally show positive correlation. Server DRAM price falls when commodity DRAM price falls, but server price drops are usually a step behind commodity price decreases.

Beginning in the second half of 2012, 8GB modules have been the supply mainstream, as 4Gb chips have gradually matured. The price wars have been intense, with a low of US$40 expected by the end of this year. As DRAM content per unit is expected to increase from this year’s 43GB to over 50GB in 2013, makers are increasing the production of 16GB modules. 16GB will likely become the mainstream in the second half of 2013, at which time its selling price is expected to have fallen to the US$60-70 range, representing a significant profit compared to commodity DRAM. In light of this, manufacturers are placing priority on server DRAM production in technology migration plans. Makers will be advancing to 20nm processes in 2013, improving cost structure and profitability.

Mobile DRAM Remains Industry Star; Demand Bit Growth at Least 50% in 2013

As for mobile DRAM revenue market share, Samsung still takes the lead with more than 60% of the market, while SK Hynix, Elpida, and Micron are more or less head-to-head in terms of process technology. Competition is harsh on the supply side, resulting in severe declines in average selling price; ASP fell by 10% or more each quarter in 2012. Looking ahead to 2013, smartphone shipments are expected to see nearly 30% YoY growth, with a projected minimum of 8.3 million units shipped. With high content per unit growth and the demand contribution from tablets and ultrabooks, demand bit growth will hit 52.7% YoY next year, the highest figure for all DRAM categories. Also in 2013, the mobile DRAM market see increased diversification; LPDDR3 will be the focus of makers’ product development. LPDDR3 not only matches the power efficiency of LPDDR2, but offers a higher data rate and greater bandwidth. TrendForce anticipates market acceptance will increase rapidly, as LPDDR3 has a wide application area; the memory can be used in ultrabooks as well as smartphones and tablets. LPDDR3 is expected to show the same pricing as its predecessor within three quarters of volume production, thereby becoming the mobile memory mainstream in 2014.

eMCP solutions, which combine mobile DRAM and eMMC, will also become an important product for DRAM makers to offer if they are to increase their competitive advantage. As eMCP has a cost advantage and shorter client testing times, the product is looked upon favorably on the demand end. By the end of 2013, eMCP is expected to represent over 40% of mobile DRAM products. Currently, the Korean makers are leading the industry in terms of eMCP technology; Samsung’s technology in particular is mature. Mobile DRAM price decline has been less severe than that of other DRAM categories, but as new competitors arrive on the scene next year, price decline will likely intensify in the second half of 2013. Based on the current market price, LPDDR2 2Gb chip price is nearly three times higher than DDR3 2Gb price; makers are profiting far more from mobile memory than from PC DRAM, which will attract more makers to enter the mobile market, increasing the competition.

Big Gets Bigger as Samsung Steers DRAM Industry

The DRAM landscape is mostly set for 2013. Leading DRAM manufacturers are, in some cases, two generations ahead of other makers in terms of process technology, and the wide variation in cost structures has resulted in dramatic differences in profitability. As market share leader Samsung takes in nearly half of industry revenue, the DRAM supply chain and price trends will be largely influenced by Samsung’s strategies.

Samsung recently announced its capex for 2013 would be less than 50% of this year’s figure, clear indication that even the industry leader holds a conservative outlook on the DRAM market. Looking at technology migration, beginning with the 25nm process, physical barriers as well as equipment limitations – EUV lithography machines are necessary – make continued advancement difficult. Migration to the 2xnm process will be even more difficult, as higher capex figures and more risk will be involved. TrendForce expects Samsung’s conservative outlook will help the industry’s supply and demand balance in the long term, as the maker shifts its focus from market share to profits. Whether or not DRAM industry revenue and profits will return to healthy levels will depend on with reallocation or withdrawal of excess capacity; supply and demand will hopefully see improvement as the industry enters the era of EUV technology.