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TrendForce Says Intervention in the Memory Market by China’s NDRC May Affect Prices of Mobile DRAM

5 January 2018 Semiconductors Avril Wu

On 22 December 2017, China’s National Development and Reform Commission (NDRC) held a meeting with representatives from Samsung to express concerns about Samsung’s role in the continuing price increase for memory products. Based on the latest findings, DRAMeXchange of TrendForce believes that this event could affect memory prices in 1Q18. At present, contract negotiations are ongoing in both DRAM and NAND Flash markets. If Samsung and other suppliers take heed of NDRC’s opinion, then the price upswing, especially in the mobile DRAM market, will likely to moderate.

Avril Wu, research director of DRAMeXchange, stated that the average selling price of DRAM is estimated to have increased by more than 40% from the start to the end of 2017. The average selling price of NAND Flash is also estimated to have gone up by nearly 40% during the same period.

The meeting between NDRC and Samsung took place because the Chinese government has received appeals from domestic smartphone makers that are struggling under component cost pressure. “By petitioning NDRC to investigate Samsung for monopolistic practices, Chinese smartphone brands hope that Samsung and DRAM suppliers following its lead will consider carefully before initiating the next round of price hikes,” said Wu.

According to DRAMeXchange, Samsung was the market leader for both DRAM and NAND Flash in 3Q17. For that period, the company accounted for 45.8% of the global DRAM revenue and 37.2% of the global NAND Flash revenue.

Outlook for 1Q18 indicates rising prices for server DRAM, while the forecast average price increase for mobile DRAM has narrowed to 3%

Surging prices have also been an issue for Chinese customers in the PC and server DRAM markets. However, Chinese PC and server manufacturers have been able to maintain the margins of their products by adopting cost controlling measures, such as holding back in increasing the memory density of their products. Server manufacturers have also been aggressively stocking up on memory components since 3Q17. As the construction of data centers grows in North America, the server DRAM market has been experiencing tightening supply and rising prices. Among the applications, the server DRAM market currently has the most serious undersupply situation. Consequently, the overall stock-up demand has also risen above expectations.

DRAMeXchange’s outlook for 1H18 finds that major DRAM suppliers are not going to expand their production capacity significantly. Any substantial plans to take on additional capacity will probably take place in 2H18. Therefore, the overall market supply is going to remain tight during this year’s first half. Although there are reports that China’s NDRC will get involved in the DRAM pricing, the general price upswing is expected to stay intact. Prices of server DRAM, for instance, are forecast to keep climbing during 1H18.

Nevertheless, NDRC’s recent action, along with slowing shipments from Chinese smartphone brands, will adversely affect the 1Q18 mobile DRAM market. The latest market survey finds that Samsung has taken the initiative in lowering quotes for Chinese smartphone makers even with the tight supply. The average sequential quarterly increase in mobile DRAM prices for 1Q18 is projected to reach just 3%, smaller than the initial forecast of 5%.

China has become the largest importer of memory products in the recent years. Market interventions by the Chinese government are liable to have some effects on the general price trends of memory products. In the case of Samsung’s memory business, more than 50% of its 2017 revenue came from China. Thus, the company has to be very attentive to the policies of the Chinese government.

Depending on NDRC’s involvement, Samsung may adjust its capacity allocation or start capacity expansion earlier than originally planned

The latest analysis on Samsung’s DRAM pricing strategy shows that mobile products have the lowest average price per gigabit (Gb) among all applications. The price differences are especially very noticeable when compared with the company’s server and graphics DRAM solutions. If the meeting with NDRC has led to a moderation in the price hike for mobile DRAM, Samsung may pursue other means to grow its profit. For instance, Samsung and other suppliers may allocate more of their production capacity to high-margin memory products. In turn, the suppliers could then lower the share of mobile products in their shipments.

The intervention by the Chinese government could also spur Samsung to expand its DRAM production capacity earlier than initially scheduled. In particular, Samsung is evaluating the use of the second floor of its Pyeongtaek fab in South Korea. The plan for the second floor of the facility is to have a DRAM production line set up and in operation during 2H18. However, Samsung up to now has yet to make a final decision on this matter.

NDRC’s meeting with Samsung will have much less influence on quotes in the NAND Flash market compared with the event’s effect on the DRAM market. There is already a widespread anticipation of a gradual price decline for NAND Flash chips and wafers used in different applications (e.g. SSD, eMMC, and UFS). While Samsung is a major NAND Flash supplier, the company’s sway over NAND Flash pricing is not as strong compared with its control over the DRAM market.

DRAMeXchange points out that lower-than-expected demand and continuing growth in the production capacity for 3D-NAND solutions will push the NAND Flash market to oversupply in 1H18. There is a strong possibility that the general price decline for NAND Flash will continue during this half-year period.

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