After spot prices have been falling for some time, the NAND Flash market is formally seeing a general decline in contract prices starting from 3Q20, according to TrendForce’s latest investigations. Looking at the extent of the price decline by product type, SSDs have experienced a relatively smaller drop because there is still decent demand for these products. In contrast, NAND Flash wafers have suffered a noticeably larger decrease because this type of product is under the mounting pressure to drive sales by cutting prices.
TrendForce indicates that, regarding the supply/demand dynamics of the whole NAND Flash market, the sufficiency ratio for 3Q20 is currently estimated at 2.6%. This oversupply situation is attributed to the accumulation of inventory caused by the economic fallout from the COVID-19 pandemic. Since an excessive level of inventory has been carried over to this quarter, contract prices have inevitably turned downward. Looking ahead to 4Q20, TrendForce expects the general decline to become sharper as the sufficiency ratio for the quarter is forecasted to reach 7.8%.
Oversupply in the NAND Flash market becomes a main reason for the widening decline in wafer prices
Major suppliers have been reducing the supply in the wafer market over the past few months in consideration of both gross profit concerns and the flourishing demand for SSD; as well, module makers were unable to effectively clear inventory due to the COVID-19 pandemic’s impact, resulting in wafer contract prices maintaining a flat to slightly downward trend from April to June. Although demand from the retail end has been recovering in June and July, the demand for PC and server SSDs has weakened as a result of decelerating demand for cloud and remote access services. To avoid a potential inventory surge, the major suppliers are pressured to ramp up their supplies to the wafer market, leading to contract prices closing in on spot prices in the next few months.
On the other hand, YMTC’s capacity expansion this year is expected to continue in 2021. In addition to reaching maximum capacity utilization in its Wuhan fab, YMTC is projected to complete the construction of a second fab in Wuhan. The company aims to start mass producing 128L products in 3Q20 and rapidly raise the shipment allocation of these products next year. Currently, YMTC has expanded the incorporation of 64L 256GB TLC products for its module maker clients; the average quoted price is far lower than contract prices and approaching spot market levels, in turn widening the decline in contract prices and exacerbating the oversupply situation in the market.
TrendForce believes that, despite the traditional peak season for electronics sales and the release of Apple’s new iPhones in 3Q20, the quarterly decline in NAND Flash ASP will likely reach 10%, due to the client end’s excess inventory under the impact of the pandemic. Furthermore, as suppliers continue making improvements in the yield rate of 128L NAND Flash, the oversupply in the NAND Flash market will intensify in 4Q20, further exacerbating the decline in NAND Flash ASP.