2H’Nov contract price dipped almost 8%
According to DRAMeXchange, a research division of TrendForce, due to the PC slow season and the HDD supply chain afflicted by the Thailand flood, the downtrend of the contract price persisted in 2H’11: the ASP of DDR3 4GB dropped by 7.9% to US$ 17.5, while DDR3 2GB ASP plunged below US$ 10 to US$ 9.5, a 7.3% decline.From the market perspective, due to the weak demand for PC in November – some PC OEMs’ orders were even cancelled -, the market remained slow. Affected by the inventory pressure, several DRAM manufacturers resorted to cutting prices.In addition, the DDR3 2GB spot price dipped 25% compared to last month, which gave the clients an edge in the contract price negotiation and in turn furthered the price drop. Although DRAM makers such as Elpida and Nanya downsized their capacities in November, the effect of downsizing will not kick in until 1Q12.In the short term, the DRAM market will still be in a state of oversupply, with the contract price downturn most likely to continue through the end of 2011.Round Two of DRAM Production Cut to Spur Industry Consolidation and End Price Downtrend in 2H’12The contract price of DDR3 2GB dropped from US$ 18.75 in May 2011 to the current ASP of US$ 9.5, a 50% decrease; the spot price of DDR3 2GB plunged by 70% to US$ 0.74.With price falling below the cash costs of many DRAM makers, companies with weaker financial health have downsized their capacities or shifted their focuses to other sectors. On account of its unbalanced financial condition, ProMOS was the first company to downsize the wafer start volume, which was reduced from 50K level in July to about 5K at present.As for PSC, due to the decreased orders from Elpida and the company’s increasing focus on OEM business and Flash products, the wafer start volume of PSC’s standard DRAM was reduced from 80K per month to about 20-30K.In light of the persisting DRAM price downtrend in 2H’Oct, more DRAM makers have downsized their capacities in November: Nanya not only downsized its mother plant’s wafer start volume by 20% but also reduced its wafer start volume in Inotera. Moreover, Nanya also endeavors to strengthen its Consumer DRAM business in the hope of reducing its loss. The Hiroshima plant of Elpida, the first global major manufacturer to announce cutting utilization rate, is scheduled to reduce the capacity by 25%. Rexchip will decide whether or not to downsize in December.According to TrendForce’s survey, due to the production cut in November, the global DRAM industry’s wafer start volume fell from 1300K per month to approximately 1100K, representing a 16% downturn. Considering the DRAM manufacturers’ active attitude towards the 30nm and 20nm process migration and the PC slow season in 1H12, DRAM is expected to continue facing a serious oversupply.Currently, the decrease on wafer start will help stabilize the price, but a balanced supply and demand hinges upon whether the global brands, including Samsung and Hynix, will join the ranks of downsizing and whether Ultrabook and Windows 8 will spur the demand in 2012.If not, the continuous production cut may trigger DRAM companies to merge, resulting in an oligopoly market. In this case, the industry will be depending on the market mechanism to weed out the weak and aid the DRAM price to rebound gradually in 2H12.