Since October, the Taiwanese DRAM vendor Q3 financial reports showed severe loss due to the continuous dropping DRAM price. PSC, Promos, Nanya, and Inotera suffered a net loss of NT$ 15 billion, NT$8.79 billion, NT$8.77billion and NT$ 4.05 billion respectively. The total loss of the Taiwanese DRAM vendors added up to NT$36.6 billion in Q3 and to about NT$ 90.8 billion in the first three quarters. Among the Taiwanese vendors, PSC and Promos suffered the most loss (see Figure-1). By analyzing the DRAM spot price, DDR2 1Gb eTT price dropped from July US$1.95 to September US$1.23 with a 37% range resulted in PSC’s enlarging loss. Promos, which focused on DDR2 512Mb chip, faced a 27% price drop of DDR2 512Mb eTT from US$0.97 in July to US$0.71 in September. Although the percentage in the price drop is less than the DDR2 1Gb eTT chip, the higher cost structure and the loss on inventory are the main reasons that brought Promos to enormous loss in Q3. At the end of October DDR2 eTT 1Gb and 512Mb dropped to US$1.02 and US$0.53, respectively. Compared to the beginning of October, the price drop range was 15% and 25%, respectively. The total loss in Q4 is expected to be greater than in Q3. This will only make these vendors, who are facing cash outflow, to suffer even more.
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Nanya and Inotera have also announced production cuts in addition to previous announcements from PSC, Elpida, Hynix, and ProMOS. For Nanya, in addition to delaying expansion plans for both Mei-ya– a joint venture with Micron– and Fab3 Phase 2, its Fab3 Phase1 will also cut production from 30K to 15K from now to Q1 next year as Fab3 Phase1 needs to transition to Micron’s stacked process. Inotera has cut production by 20% from 130K to 104K. Combined with announcement from other DRAM makers previously, DRAMeXchange estimates total worldwide production cut of 12-13%.
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DRAM DDR2 1Gb 667MHz spot price fell from a high of 2.29 US$ on May 6th to 1.13 US$ on Oct. 17th for a nearly 50% drop in price. Since DRAM spot price first fell below the average cash cost of most DRAM makers back in Sep. 6th, given the current inventory level and weakening demand, DRAM maker will have to cut back production much further. Once DDR2 1Gb drops below 1.3 US$, continued production will simply lead to cash loss, and it will be completely pointless to continue producing any longer.
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Ownership of Taiwan memory chip maker Inotera Memories Inc. has finally been cleared up, as Micron Technology Inc. announced on Oct. 13 that it will pay $400 million in cash for Qimonda's entire 35.6% stake in Inotera. The deal is expected to bring closer relationship between Micron and Nanya Technology Corp., Inotera's major shareholder. Inotera's manufacturing technology will also become more compatible with Micron's, as with the stake transfer, Inotera plans to switch to Micron's Stack process manufacturing technology from the current Trench process from Qimonda.
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To DRAM industry, 2007 and 2008 are absolutely considered the down years. Over expansion by the DRAM makers resulted in an over-supplied market where DDR2 die price fell sharply. With the expectation of lower PC sales in Q4, DRAM inventory is expected to continue its climb and DRAM price is expected to break new lows. Up to this point, DDR2 1Gb eTT spot price is now at 1.15 USD and DDR2 667 1Gb is down to 1.19 USD. Even though DDR2 price is already below its variable cost, for DRAM makers, developing DDR3 remains the key factor to winning the next war.
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DRAM makers have announced cutbacks in production since September – PSC, Elpida, and Hynix have separately announced cutbacks on September 8th , 9th , and 18th. If the cutbacks proceed as scheduled, we expect to see a reduction in worldwide DRAM production by 5 to 6% around end of October to November. Spot market was encouraged - rose from 1.32 USD on September 8th to 1.4 USD on September 10th for an increase of 6% - initially when the first cutback was announced. However, the rebound was short-lived; by September 11th, price on spot market began to fall again. After the last announcement of cutback from Hynix, spot price failed to continue the rise with average price increasing slightly by 0.01 USD then weakened by the continued slow demand. Overall, spot market demand continued to weaken in September in spite of announcements of the production cutback.
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DRAMeXchange expects some players with weak cost structures that may follow the production cutback trend, thus, DRAM output is estimated to be reduced by 6-8 % in total.At present, the DRAM industry is not about winning or losing of companies unless the DRAM output is adjusted. Instead, it will be a loss encompassing everyone, says DRAMeXchange.
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PSC and Elpida have announced respective DRAM output cut recently. Amid the reduction, global DRAM output is estimated to be reduced by 2-2.5% accordingly. Of which, PSC will cut output by 10-15% and Elpida will cut its Hiroshima, Japan fab output by 10%. PSC and Elpida house a respective output of 130k and 115k, respectively, representing a global market share of 20%.
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Powerchip announced during the late afternoon on Sep.8 that it plans to cut its DRAM capacity 10%-15% in Q408. Currently, Powerchip’s fab output ( P1+P2+P3, including the portion allocated to Elpida ) accounts for nearly 10% of the total worldwide DRAM output. The 10%-15% capacity cut is expected to reduce the worldwide output by 1%-2%.
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Demand for DRAM does not recover after the Beijing Olympics. By seeing their expectations being failed, some memory module makers thus started initiating price cut at China. Therefore, 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.
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