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DRAM contract price drops for 1HAug

Posted: 17 Aug 2011 ?? ?Print Version ?Bookmark and Share

Keywords:DRAM? contract price? price recovery?

The first of half of August saw the contract prices of DDR 2GB and 4GB fall to $12.25 and $23.5, respectively, decreasing 15.52 percent and 16.07 percent. This came from a recent report from DRAMeXchang that paints a bleak picture for DRAM until 2HAug.

DRAMeXchange said the data represents the biggest biweekly decline since June, with 4Gb DRAM posting the lowest transaction price of $22.5, falling 18.18 percent, directly resulting from DRAM manufacturers that push to make 4GB DRAM modules the mainstream. DRAM makers are all lowering prices in order to increase shipments and improve performance, explaining the huge decrease for 1HAug contract price. From the market perspective, as PC OEMs are conservative about shipments in 2H11 and demand has not recovered despite the peak season, purchasing has decreased dramatically.

As DRAM spot price continues to fall, manufacturers are in a predicament: the more they sell, the more losses they suffer. Since PC DRAM content per box has not increased significantly and economies worldwide continue to worsen, severe supply and demand imbalance has brought the DRAM industry back to the state it was in during the 2009 financial crisis. There is news of Taiwanese DRAM manufacturers cutting production or storing raw wafers in a wafer bank. However, the goal of these measures is not solely to help price recovery. Rather, manufacturers are merely trying to survive the storm by decreasing cash outflow. Due to ProMOS' financial difficulties, starting in July, the company decreased their wafer start volume from 50K to 25K starts per month. The manufacturer was also the first to cease production of DDR3 wafer starts, whose price has seen the greatest decrease. At present, only DDR and DDR2 products are being manufactured, with the possibility of further wafer start cuts.

As for Powerchip and Rexchip, they are negotiating with Elpida and seriously considering depositing raw wafers in wafer banks. Powerchip has made production cuts and begun to decrease commodity DRAM wafer starts. If price continues to fall, they will consider decreasing output even more in order to decrease cash outflow. As for Nanya and Inotera, as they had a high capex due to the transition from trench to stack technology last year and half of their total output still comes from 50nm processes, their production costs are higher than other DRAM manufacturers. The companies are in potential crisis, losing a chip and a half for each chip sold. There is also news of Inotera remaining at fully loaded capacity, while Nanya has begun cutting wafer start volume. Aside from continuing to increase the proportion of specialty and server DRAM, any other strategy that might possibly enable the companies to hold onto their cash are being discussed internally.

As for Korean manufacturers, Samsung expects to begin mass production on 28nm processes in 2H11, and the yield rate for 35nm production has stabilized. Due to the company's cost advantage, Samsung is not considering any production cuts and will stick with its goal of increasing DRAM market share. On the other hand, Hynix has decreased commodity DRAM revenue to approximately 30 percent, and the rest of their capacity has been transferred to more profitable server DRAM, mobile DRAM and other specialty products. Hynix's performance has been relatively stable throughout this period of price collapse and they do not have any production cuts planned at this stage. From a market perspective, Taiwanese DRAM manufacturers are cutting production in a bid to save themselves, not in anticipation of a price recovery. However, PC demand for 2H11 is weak and content per box has not increased significantly. Therefore, DRAMeXchange expects that the oversupply state of commodity DRAM bit output will reach 20 percent and if no Korean maker decides to join the others in making capacity cuts, the market will not return to a state of balanced supply and demand, and DRAM price will continue to fall.

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