PC DRAM Contract Prices Stabilized in August

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The global market research firm TrendForce reports that the average contract price of 8GB PC DRAM modules remained constant at US$25.5 in August, showing no noticeable change from the previous month. Negotiations between DRAM suppliers and PC OEMs over the September contracts are still ongoing, but most signs indicate that contract prices of mainstream PC DRAM products will hold steady during the month.

TrendForce’s recent observations of the global DRAM market find that the anxiety over the impact of Japan’s trade actions against South Korea on the supply side has dissipated as the Japanese government has approved shipments of specialty materials to the two major Korean suppliers. However, the dispute between the two countries did heighten the uncertainty about the supply situation for a short while when it escalated in early July. To minimize the risks in their operations, OEMs have opted to raise their inventories of memory components. This, in turn, has helped suppliers in their efforts to lower their inventories to a reasonable level. Furthermore, the stock-up demand was stronger than expected this third quarter due to the seasonal tailwinds and the pulling forward of end product shipments ahead of a possible new round of US tariff increases in December. DRAM suppliers thus became firmer in their price negotiations as they saw the positive change in the demand situation. Consequently, the overall trend of contract prices also shifted from decline to stability during the third quarter.

The industry’s bit output growth in 2020 is projected to be the lowest in the recent decade as the major suppliers have adjusted their capital expenditures to maintain profitability.

According to TrendForce’s outlook of the DRAM market for 2020, the respective capital expenditures of the three major suppliers (Samsung, SK Hynix, and Micron) are projected to drop by at least 10% YoY. The YoY growth of the total DRAM bit output in 2020 is also forecasted to be the lowest in the recent 10 years, at just 12.5%. The curb on the supply growth will set the stage for the general price rally in the middle of next year.

TrendForce’s latest analysis of the major suppliers’ capacity expansion and utilization plans reveals that the general consensus is toward restraint. Samsung is on track to complete the construction of the second fab at its production complex in Pyeongtaek. However, this facility is not going to start operating until the second quarter of 2020; and the new equipment there will be mainly used to support Samsung’s migration to the 1Z-nm process. Samsung next year will keep its total DRAM production capacity at a similar level compared with this year.

SK Hynix will finish with the construction of its new fab M16 in the second half of 2020 at the earliest. The plant will probably enter operation no earlier than 2021. Since SK Hynix is steadily shifting more of the production capacity at its legacy fab M10 to meet the demand related to its foundry service, its total DRAM production capacity will shrink next year instead of expanding.

Micron this year has set up an additional facility to the main plant building at its Hiroshima base. Identified as Building F, this facility is primarily used to assist in the development of the 1Z-nm process and therefore makes no tangible contribution to Micron’s DRAM production at the moment. Micron Memory Taiwan is currently building a new fab identified as A3. The plan for A3 in its early phase of operation is also to support Micron’s migration to the 1Z-nm process. TrendForce for now believes that the possibility of Micron raising its DRAM production capacity is fairly slim in the short term. However, A3 has plenty of space for future capacity expansion.

Chinese memory makers will account for less than 3% of the total DRAM wafer starts in 2020; further observations are required to understand their long-term effects on the global DRAM market.

China’s two main domestic DRAM manufacturers are CXMT and JHICC. CXMT, which is larger in scale, has already begun small-scale production and is turning out DDR4 8Gb chips as its initial product. There is a possibility that CXMT will launch its own LPDDR4 8Gb chips in the first half of 2020 as it works toward volume production for its process technology. However, CXMT is not expected to reach its fully loaded capacity of 100K/m or higher until 2021. As for JHICC, its production line currently lacks on-site support from its US-based equipment providers because of the US government’s export restrictions. Internally, the manufacturer is doing as much as it can to optimize the parameters and settings of the machines in the production line. TrendForce estimates that JHICC’s DRAM wafer starts will be within 10K/m by the end of next year.

Taken all together, China’s indigenous DRAM production will still be very limited next year. Based on TrendForce’s latest projection, the Chinese memory makers will account for less than 3% of the DRAM industry’s total wafer starts in 2020. Going forward, the Chinese will need to overcome numerous challenges of varying degrees in the development of domestic DRAM manufacturing. Areas that they have to work on include raising the process yield rates, acquiring and setting up key equipment, and dealing with IP-related issues. More follow-up observations are needed to determine when the activities of the Chinese memory makers will have noticeable impacts on the supply/demand dynamics of the global DRAM market.