TrendForce：1HDec Contract Prices Rise following Increased Spot Market Momentum

According to DRAMeXchange, a research division of TrendForce, although 2HNov DRAM contract prices took a slight 3.17% dip, 1HDec module prices have gone on an uptrend thanks to stimulation from the spot prices. The 4GB ASP has risen by 1.64%, returning to the US$15.5 mark, while the 2GB prices climbed 1.71% and approached US$8.9. From the pricing angle, the fact that prices have not plunged even with the unpromising demand situation is indicative of both the PC OEM's hard efforts to adjust inventory to healthy levels, and of the fact that buyer momentum is gradually increasing. On the supply side, DRAM makers are increasingly observed to be migrating towards the use of new manufacturing technologies. The two main Korean DRAM makers, for example, are transitioning from the 3x nm processes to the more difficult-to-handle 2x nm processes. On the other hand, the US DRAM maker, Micron, is gradually increasing its 3x nm production capacity, and is currently in the process of transitioning to new manufacturing technology. In the DRAM spot market, supplies of several product categories are being tightened, in effect leading to further pricing uptrend.

Given the persistent DRAM oversupply this year, the 2Gb spot prices had initially been on a downtrend, dropping to as low as US$0.817 during 2HOct. During December, though, spot prices have rallied, and now exceed the previous lowest mark by 15%. At the moment, spot prices remain the leading indicators of the prices in contract market. With the effects of the September production cuts beginning to take effect and assumed to continue, and with the manufacturing focal point tipping towards mobile DRAM, TrendForce predicts that the market will gradually see a demand-supply balance, and that PC DRAM’s pricing downtrend will come to a temporary halt at one point.

2013 DRAM Industry to Lower Capital Expenditure by 20%, Migration Progress to Slow Down

Due to the consistent oversupply situation exhibited year after year, the DRAM industry is generally viewed unfavorably in terms of its financial prospects. While manufacturers have successfully utilized supply tightening strategies as a means to reduce costs, the highly aggressive nature of the market has made it difficult to generate much profit. As such, when it comes to the management of financial resources and capital expenditure, manufacturers often face a dilemma: decreasing investment, on the one hand, will make it tough for DRAM makers to compete effectively in terms of controlling production costs. On the other hand, overinvestment not only increases the pressures of maintaining healthy cash flow, it also potentially exacerbates the market oversupply situation. In 2012, most DRAM makers have found themselves in a financial strain when demand took a drastic hit from shrinking PC shipments. Other than to make flexible adjustments to their production mix, the less-competitive, cost conscious manufacturers have also begun to resort to means such as gradual production cuts.  

For 2013, there seems to be a general consensus towards the lowering of DRAM-related capital expenditure. Samsung, which became the only profitable DRAM maker this year due to its vertically integrated supply strategy, is among the major companies to have adopted this view. In the past, the Korean company has been known to pour in major funds just as other manufacturers are beginning retract or lower their investments. This year, Samsung has reversed its approach. While a necessary transition has been made from PC to Mobile DRAM, the company announced it will be largely reducing DRAM capital expenditure by 48% compared to this year. For 2013, the total amount spent is projected to be 110 million USD, which is a historical low for the company.

Similar to Samsung, other DRAM manufacturers are set to begin lowering their capital expenditure. According to TrendForce, the total amount of invested capital for DRAM in 2013 will be approximately 21% less than it is this year, a trend which is  likely to take a toll on the manufacturers’ technological migration progresses. This is evident in the fact that the 3X nm processes are still set to be the 2013 mainstream, which signifies a major break from the two-migration-processes-per-year tradition. If the DRAM industry were to undergo any more structural changes due to major shifts in demand, flexible supply control strategies may be the only appropriate measure left to take. Unless appropriate means are utilized, manufacturers within the industry face the possibility of being eliminated altogether.