DRAM Contract Prices Stabilized in June and Are Expected to Rise in Q3

DRAMeXchange, a division of TrendForce, reports DRAM prices were on a decline from October 2014 to June 2016, with the average contract price of DDR3 4GB plunging 62% from U$32.75 to US$12.5. “After being on a downtrend for almost two years, DRAM contract prices stabilized in June as most negotiations settled at US$12.5,” said Avril Wu, DRAMeXchange research director. Due to the tightening of supply, first-tier PC OEMs also started their third-quarter contract negotiations earlier in June. DRAMeXchange expects DRAM contract prices to go up in the third quarter, and the increases will range from about 4% to 8%.

Suppliers reduce their PC DRAM output; tight NAND Flash supply coupled with power outage at Samsung’s Xian fab led to rising prices for both DRAM and NAND Flash

According to Wu, demand from mobile and server applications will be the main driving force that help raise average contract prices in the DRAM market during the third quarter. PC demand remains in a slump, and Windows 10 licensing scheme, which sets fees according to system specs, further discourages PC vendors from increasing the memory content per box for their products. With prices of PC DRAM products falling to almost their cash costs, South Korean suppliers steadily reduced the share of this application in their respective product mixes during the second quarter. Fortunately, the content per box of smartphones worldwide this year is projected to grow considerably by 36% compared with 2015, and new flagship smartphones that will be available during the second half of the year will carry a maximum of 6GB. Server DRAM’s content per box will also increase by 25% year on year to 110GB. On the whole, demand from mobile and server applications will effectively consume the excess capacity as a result of suppliers adjusting their product mixes.

Additionally, the effects of tight supply in the NAND Flash market will contribute to the rebound of DRAM prices in the coming months. The strong SSD demand and the restocking of eMCP and eMMC for the peak season have already raised NAND Flash prices. Furthermore, Samsung’s memory fab in Xian, China, suffered a sudden power outage on June 18. Since this accident cut a day worth of NAND Flash and DRAM supply for memory module makers, spot prices for both products jumped across the board. The average spot price of DDR3 4Gb, for instance, rose by 9% to US$1.65 by July 1.

These factors, together with suppliers’ technology migration efforts, are expected to reverse the price downtrend in the DRAM market. Samsung’s 18nm process is moving towards the mass production phase. SK Hynix and Micron are also increasing the wafer capacity of their respective 20/21 nm processes and are expected to see a turnaround in terms of the overall profit. In sum, the DRAM market will become healthier in the second half of 2016.

Micron expected to enter a DRAM partnership separate from its NAND Flash alliance with Intel

Micron recorded a loss in its third fiscal quarter from March to May and is planning to cut 2,400 jobs. At the same time, however, Micron continues to search for various forms of partnerships within the DRAM industry. Last year, Chinese technology conglomerate Tsinghua Unigroup tried to acquire Micron for US$23 billion, but the deal was blocked by the Committee on Foreign Investment in the U.S. (CFIUS). There are reports that China’s semiconductor sector is again gathering forces to make another offering to Micron concerning other non-DRAM products. Such a deal would not come in conflict with Micron’s plan to acquire Inotera. On the other hand, another U.S.-based semiconductor company has been recently reported to be in talks with Micron as well.

Historically, Micron has been successful in its deal-making, from the purchase of seven wafer fabs from Texas Instruments’ memory business in 1998, to the acquisition of Qimonda’s stake in Inotera in 2008 and the acquisition of the bankrupt Elpida in 2012. Micron is likely to continue following the same strategy as before and pursues alliances that will maximize its interests. Wu said Taiwan is Micron’s most vital DRAM production base and currently accounts for 60% of the company’s total DRAM wafer capacity. Micron’s local subsidiary, Micron Memory Taiwan (formerly known as Rexchip), is advancing towards the 16nm process. As for the local supply partner Inotera, the foundry will be fully transitioned to 20nm process in the second half of 2016. By that time, the majority of Inotera’s output will also be mobile DRAM, which is more cost-effective and profitable to make compared with PC and server products. While Inotera has yet to move forward with Micron’s acquisition deal, the foundry will still be the most competitive DRAM manufacturing partner for Micron