2H’March Average Contract Prices Fall 1.56%, According to TrendForce

The DRAM contract price for March continued to show a slight drop due to the effects of the traditional off-peak quarter, according to DRAMeXchange, a research division of TrendForce. The average agreed price arrived at approximately $US 31.5, which is a 1.56% decrease compared to the second half of February. Looking at the market, as the majority of the clients have already taken steps to settle on a quarter-based, lock-in contract price during the first quarter of this year, there are only a few clients left --as of March-- who have yet to negotiate on a lock-in deal. On the whole, though, it appears that the DRAM contract prices will continue to remain on a slight downtrend. Notably, under the market's current oligopoly structure, the frequency with which the contract price negotiations are taking place is gradually beginning to drop. When the market officially transformed into an oligopoly following Micron's Elpida acquisition and the withdrawal of several Taiwanese DRAM manufacturers from the market, the tendency of manufacturers to engage in aggressive pricing competitions fell, and an increasing number of DRAM makers began to prioritize securing long term agreements with PC-OEM clients. The rate at which the contract prices are being negotiated has dropped from once every two weeks to either once per month or once every quarter. Even though the prices are continuing to be revised downwards due to the aforementioned market situations, the DRAM industry, on the whole, is still relatively profitable.

Product Mix Adjustments Key to Profiting if 2014 Wafer Capacity Remains Unchanged

Based on the overall number of wafers produced, it appears that the DRAM industry has not implemented any official capacity expansions in three years. The annual growth, for the most part, is the result of the technological migrations. Looking at the demand side, with this year's total PC shipments likely to be approximately 0% and weak compared to those of smartphones and tablets, and with the demand for server products rising noticeably following the growing popularity of cloud services, the DRAM product that is expected to show the most shipments this year is likely to be Mobile DRAM rather than PC DRAM. The product adjustments implemented by DRAM manufacturers following the shifting dynamics on the supply end will be expected to gradually affect their overall profitability. In 2014, Samsung shifted its focus towards profit-oriented strategies, and was able to generate the most profit from its PC DRAM product (using its existing price); The shipment performance of its Galaxy series and the company's current discussion with major clients will determine the type of adjustments that may be implemented for its Mobile DRAM product line. With regard to SK Hynix, as the company is hoping to adjust the product ratio of its PC and Mobile DRAM in a way that allows them to be balanced, the company's PC DRAM output proportion is unlikely to end up reaching 40% like it did last year, and the company will likely release its LPDDR3 8Gb chip as early as the second half of 2014. Micron is currently focusing on the possibility of Apple adopting LPDDR3 for all of its future Notebooks, and has raised the wafer start capacity at its Taiwan subsidiary (formerly Rexchip) as a means to handle 2H'14 demand. Under the DRAM industry's oligopoly structure, long term partnerships will soon replace the fierce pricing competitions that traditionally characterize the industry, and may lead to a new kind of interaction between DRAM manufacturers and PC OEMs.