TrendForce: 1H’Jan DRAM Contract Prices Drop as SK Hynix Makes Gradual Recovery

The DRAM contract prices have gradually begun to decline due the increased production at SK Hynix's Wuxi Plant and the industry's eased shortage situation, according to DRAMeXchange, a research division of TrendForce. The highest price for mainstream 4GB modules has already fallen from US$35 to US$34, and is perceived to be a leading indicator of the impending price changes within the market. Calculating on the basis of the market's average prices ($US33), the price of the 4Gb chip is estimated to be approximately $US 3.81, which is around 10.3% less than the US$4.203 spot price. Avril Wu, TrendForce’s assistant vice president, projects that the DRAM contract prices will first converge with the market spot prices by the end of the first quarter, and then begin to fall during 2Q14.

With the impacts of the Wuxi Plant's September fire accident gradually diminishing, the production of DRAM manufacturers such as Samsung (25nm) and Micron (30nm) are expected to become relatively smoother, while SK Hynix's supplies are anticipated to return to normal levels during February. While this will make it difficult for the prices to approach or exceed the previously mentioned $US 35 mark (from 4GB), SK Hynix is reportedly planning to adjust its prices upwards following its full recovery from the fire accident. Under the current oligopoly market structure, the price range acceptable to PC OEMs is approximately US$32-US$33 for the time being.

Looking at the demand side, the shipment for Notebooks in February is expected to drop by nearly 30% MoM following the passing of Chinese New Year, and is likely to cause the contract price drop to be even more severe. Sticking to its initial predictions, TrendForce believes that the contract prices will return to pre-fire levels during 1Q14, that the mainstream module prices will be between $US 27-28, and that the decline in average retail prices will reflect the drop in manufacturing costs. The potentially severe price drop in 2Q14 will undoubtedly affect the manufacturers’ profit prospects negatively.