Looking back in the year 2008, the WW DRAM industry was facing severe oversupply and industry structural problems. In 1H08 most 8 inch fabs switched to non-DRAM productions one after another. Retiring the 8 inch DRAM capacity and stepping forward to the 12 inch capacity in order to lower the DRAM chip cost, the vendors was claiming that they will migrate to 50nm process in 2009. At this point the whole industry believed that the recovery will come in 2H08. After all, the global financial crisis once again pushed the DRAM industry into the frozen period, and not only the DDR2 1Gb eTT chip price fell once below its historical low US$ 0.58, but the net cash outflow put the DRAM vendors in a devastated position.
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After the DDR2 667Mhz 1Gb chip price plummeted through US$ 1 cash cost in October and kept falling to the vendor’s material cost US$ 0.6, the DRAM vendors could not tolerate the loss any more and cut more and more output. According to the statistics of DRAMeXchange, the Taiwanese vendors cut almost 30% of their output in terms of 12” equivalent in 4Q, the Korean vendor Hynix terminated its 8 inch fab output and cut 20% of its 12 inch fab output. Although Samsung hasn’t decrease its output, the total output of the Korean vendors decreased 16% in 4Q. The Taiwanese vendors will elongate the Chinese New Year holidays to two weeks In January 2009 hence the 1Q output will keep decreasing. According to the estimation of DRAMeXchange, the output decreasing effect will last with the WW DRAM output cut in 1Q09. Along with the global economic downturn and the decreasing PC sales in 1Q09, the contract DRAM price may reach bottom but the upside momentum will be comparatively weak. On the spot price side, the upside momentum is higher with the decreasing output of the major vendors and Taiwanese vendors, and it may has chance to reach US$ 1. (Figure. 1)
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Commodity DRAM contract price plunged sharply in 2007 due to the oversupply, with 83% drop YoY and 48% drop in 1Q07, and most vendors started to suffer from loss in 2Q07. At the beginning of year 2008, DRAM price quietly pulled back again but still below the vendors’ total cost, which was US$ 2.5 average. With the economic downturn, the price of DDR2 1Gb chip dropped from US$ 1.75 in September 2008 to US$ 0.94 with a range of 46%. Even now the price has already fallen below vendors’ cash cost, which excluded the depreciation, the price still couldn’t stop falling. The demand shrank under the financial crisis, both the DRAM contract price and spot price fell under vendors’ material cost (includes material cost of the chip, packaging, and testing cost) US$ 0.6 to US$ 0.7 but no sign of price rebound has shown. Along with the difficulties of raising fund in the capital market, all vendors are now facing the decreasing of operating cash position and the severe circumstances of accepting the government bail out or getting out of the market.
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DDR2 667MHz 1GB contract price dropped another 10% again. The 2H December contract price may fall again.DRAM chip price still can’t fight against the weak spot market demand, although the drop
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The DRAM chip spot price once again hit historical low, the DDR2 1Gb eTT chip spot price plunged from 0.8 USD to 0.68 USD last week (Nov. 25th to Dec. 1st), with a 34% drop range of the single month November. Meanwhile, the DDR2 512 Mb eTT chip price fell from 0.39 USD to 0.35 USD with a 10% drop range. The price dropped 33% in November alone. The sharp decline of the spot price last week was mainly due to the inventory regulating and month end window dressing. But with the closing to the year end and the worsening demand, it's worth paying attention that some spot market participants are considering getting rid of their inventory in order to have cash in hand and survive during the economic downturn. Irrational price plunging may take place before the year end once again.
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Although whether the Taiwanese government will fund the DRAM companies or not is a hot topic and under public discussion, the DRAM price eventually is determined by the market demand. With the worsening global economic downturn and frozen Christmas demand, the DDR2 spot chip price continued to hit historical low. Last week (11/18-11/24), the DDR2 1Gb eTT chip price dropped from US$ 0.87 to US$ 0.81, with a range of 6.9%, and dropped 33.6% from the beginning of the 4Q. The DDR2 667Mhz 1Gb chip price wasn’t doing any better and dropped from US$ 0.86 to US$ 0.77, with a range of 10.5%, and dropped 36.8% from the beginning of 4Q. In the past, the original chips traded in the spot market were under strict testing process and enjoyed higher price comparing to the eTT chips, but now the price is lower than the eTT. It obviously showed that the DRAM vendors are dealing with sever inventory pressure and the oversupply situation still remains.
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Accompanied with the severe DRAM over supply and the global economic slow down, the DDR2 1Gb eTT chip price has plunged from the beginning of the year US$1.76 to the current US$0.92 in 2008, with a 48% drop range, and the DDR2 667 1Gb chip dropped even reached 53%. Besides, the DRAM industry has been through near two long years of loss and recently even the chip price fell below the variable cost. The DRAM vendors are facing insufficient cash in hand and cash outflow, and it’s the matter of survival or out of the game. From September, vendors such as PSC, Elpida, Hynix, Promos, and Inotera all announced production cut one after another. Industry wise, the production has reduced 13%. All these once again reflect how harsh the DRAM market is for all the players.
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Because the enormous capital expenditure of DRAM manufacturing and sharp equipment depreciation occupying upward of 40%~50% of cost, production capability must be in full utilization to drive down the average bit cost and to recover equipment investment. Thus, when supply and demand are unbalanced, the self regulated reduction in supply that is common to other industry is seldom seen in the DRAM industry. DRAM manufacturers with capital may even expand production capacity despite market downturn, thus they may increase their market share after their weaker competitors withdraw from the industry.
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Since October, the Taiwanese DRAM vendor Q3 financial reports showed severe loss due to the continuous dropping DRAM price. PSC, Promos, Nanya, and Inotera suffered a net loss of NT$ 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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