Taipei, September 2, 2008 --- Demand for DRAM did not recover after the Beijing Olympics. Memory module makers, whom realize that their expectations have failed, are starting to initiate price cut in China. According to DRAMeXchange, price of DDR2 1Gb eTT has dropped by an approximate of 7% within single day to US$1.51, marking a new record low since Nov 27 (at US$1.57). Price of DDR2 1Gb eTT has declined by 20% throughout August. And that price of branded DDR2 667 1Gb has also dropped to new low at US$1.65 in the same period.
Some industry players explained the 10% sequential DRAM contract price drop in 2HAug to a noticeable drop in PC OEM demand. Amid a weak economy trend and unclear demand visibility for Christmas, PC OEMs have started trimming their inventory from a 6-8-week amount. Some orders were even said to be cancelled. DRAM makers thus have no alternative but to lower their price further. Given that the downward price trend is solid, price should hit bottom in October.
After seeing a price plummet in early 2007, DRAM makers still fail to see their ASP rises above cost, despite pricing has shown some temporal rebound or stability. Thanks to pre-stock procurement among PC OEMs and traders, price appreciated by more than 20% in 2Q08. Some DRAM makers thus expect to swing from loss to profit under an anticipation that the upward price trend would sustain.
However, spot price later posted a sharp fall in early July, followed by a weakening contract price trend in late July. While price seems having no upside catalyst in 3Q08, inventory clearance pressure is intensifying on an eroding demand. When more industry players expect a supply trim to drive price upward, DRAM makers have no way back but to continue expanding and shrinking design geometry. Therefore, pace of DRAM cost down lags behind ASP erosion.
DRAMeXchange analysts indicate that in addition to increased output from 50nm generation migration, new camps are also expected to fill the market with fresh capacity. Nanya, which has forged partnership with Micron, is expected to add an extra capacity of 30k per month at its Fab 3 during the second phase production. Fab 2, which is scheduled to remodel as 12-inch fab, will also contribute another 45k of capacity. Rexchip also has plans to expand capacity at its R2 to 30k in 2009. And Elpida will also tie up with UMC and Suzhou Venture Group (SVG) for a 12-inch wafer fab in China. The aggressive expansion plans imply that oversupply will continue weighing on DRAM makers’ profitability in near term. Under such an industry trough, a market mechanism will edge out those players with poor cost structure.
Figure-1 DRAM Spot Price