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Average DRAM Contract Price Sank Nearly 10% in October Due to Ongoing Supply Glut, TrendForce Reports

2 November 2015 Semiconductors Avril Wu

The latest DRAM price report from DRAMeXchange, a division of TrendForce, finds that the average contract price of DDR3 4GB modules  fell by 10% from US$18.5 in September to US$16.75 in October. The lowest contract price in the market is currently at US$16.5. Both monthly and quarterly contract prices dropped as the outlook of the notebook market has become more conservative after the peak season. Fourth-quarter notebook shipments are expected to contract by 1% quarterly, and this lack of end demand has resulted in excess DRAM inventory for PC-OEMs. Moreover, DRAM suppliers are now producing on the advanced 20/21 processes and thereby increasing the overall DRAM supply. Consequently, average contract prices for all DRAM modules fell through the US$17 floor in October as the market favored buyers.

The decline of DDR3 4GB module’s average contract price has exceeded 40% this year from US$29.5 to the current US$16.75, according to Avril Wu, assistant vice president of DRAMeXchange, a division of TrendForce. The contract prices of DDR3 4GB modules will continue to fall as the global economy will remain sluggish until the middle of 2016. Rather than scaling back their production, top DRAM suppliers Samsung and SK Hynix will expand their capacity to head off China’s efforts to create a formidable “Red Supply Chain” for its memory industry. Though increasing capacity will result in short-term price fluctuations and even declining profits, this action is necessary to retain market shares and raise the competitive barriers against potential rivals.

South Korean DRAM giants to increase their capacity in 2016 and widen the technology gap to prevent the rise of “Red Supply Chain” in China

As Samsung, SK Hynix and Micron maintain an oligopoly in the global DRAM market, increasing profits have taken over capacity expansion and technology migration as their top priority. However, they have become increasingly worried by China’s determination to build its own semiconductor sector because the cornerstone of this project is the formation of a domestic DRAM industry. The policy imperative of the Chinese government are seen in a series of events – from Tsinghua Unigroup’s offers to Micron, formation of XMC to Powerchip and UMC’s respective constructions of new fabs in Hefei and Xiamen. 

While this flurry of activities by the Chinese do not pose an immediate and serious threat, the industry will feel their impacts in the long run. In response, the dominant South Korean suppliers are now raising the entry barriers to the global semiconductor industry early on. Though their efforts are uncoordinated, they both seek to stop their Chinese competitors simultaneously on the technology and production fronts.

Samsung plans to increase it Line 17 fab’s capacity from 40,000 to 50,000 wafer starts per month. The global DRAM leader will also widen the technological gap between it and its competitors by migrating to the 18nm manufacturing ahead of schedule and will be producing on this advanced process as early as 2016. 

Likewise, SK Hynix is taking a more proactive approach in capacity expansion. By the end of this year, the supplier’s M14 fab will increase from 15,000 to 70,000 wafer starts per month. SK Hynix will thus be able to maintain its overall capacity level for next year even as its older fabs undergo technology migration and lose some capacity in the process. In terms of production technology, SK Hynix’s 21nm process will be formally entering production in this fourth quarter. At least 50% of the supplier’s total capacity will based on this technology by the middle of 2016. SK Hynix is also developing the 18nm technology, which is scheduled for testing at the end of next year.

In contrast to the other two major suppliers, Micron appears to be making slow progress on the technology front. The company is distracted by the departures of personnel at the senior management level. More seriously, its R&D unit in Japan is losing talents as well due to turnovers and raids from competitors. These problems will have a significant impact on Micron’s plans to advance towards the 20nm manufacturing and to develop the next-generation memory technology.

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