DRAMeXchange, a division of TrendForce, reports the average contract price of 4GB PC DRAM modules increased over 20% between September and October from US$14.5 to US$17.5 as DRAM suppliers completed their fourth-quarter contract negotiations with first-tier PC-OEMs. Spot prices of DDR3 and DDR4 4Gb chips also rose 17% to 24% respectively in October compared with the prior month to US$2.46 and US$2.48 on average. This strong showing indicates that the DRAM market outlook is rosy and further price increases are expected in the future.
“From the supply side, PC DRAM currently accounts for less than 20% of the total output from the global DRAM industry because suppliers are focusing on the mobile and server DRAM markets,” said Avril Wu, research manager of DRAMeXchange. “From the demand side, branded device makers have fairly low DRAM inventories while facing higher-than-expected demand in the busy season. Hence, prices of PC DRAM have risen sharply in the recent period.”
Wu also noted that a large price increase in the PC DRAM market that is not caused by a factory accident disrupting the supply is rare in recent years. Furthermore, the momentum in the PC DRAM market is pulling up prices in both the mobile and server DRAM markets during the fourth quarter.
The recent DRAM price upswing reflects the current oligopoly – the top three suppliers achieve profits while slowing down China’s foray into the market
Wu pointed out that the high level of smartphone and server demand has spurred DRAM suppliers to transfer much of their capacities to producing mobile and server DRAM: “The PC DRAM market has been severely undersupplied in the second half of 2016, and this in turn has also led to an across-the-board price upturn for all types of DRAM during the recent period.”
“At the same time, changes have occurred in the relationship among the top three suppliers – Micron, SK Hynix and Samsung,” Wu added. “Based on the oligopolistic market situation, the trio have opted for co-existence as the best way to maximize their own profitability. They therefore are turning away from aggressively competing for market share through price reduction and capacity expansion.”
DRAMeXchange’s analysis projects that the top three suppliers will either keep their capital expenditures for 2017 at the same level as this year or lower their spending. With suppliers shifting their consensus from being the market leader to maintaining profitability, bit supply growth will also be significantly reduced. DRAMeXchange projects that the global DRAM industry will post an annual bit supply growth rate of less than 20% for 2017, an eight-year low.
In the recent years, the Chinese government has tried to build up domestic DRAM and NAND Flash industries. The period of depressed prices before 2016 was a window of opportunity for Chinese semiconductor companies to acquire international memory manufacturers. The U.S.-based Micron in particular was a sought-after acquisition target as South Korean manufacturers Samsung and SK Hynix continued to remain profitable despite the market downturn and were less inclined to work with the Chinese. With the market making a strong recovery in the second half of 2016, Micron has regained its financial footings by following the South Korean DRAM suppliers in raising prices. Hence chances of Micron developing deep relationships with Chinese semiconductor companies are less likely. At this point, none of the top three DRAM suppliers would welcome a Chinese competitor that is supported by the home country’s industrial policies.
“In a sense, there a strategic aspect behind the latest wave of DRAM price increase,” said Wu. “In the short term, rising prices lift up margins for suppliers. In the long run, the barrier to keep Chinese competition out of the DRAM market is reinforced.”