DRAM spot price rose 63% and Taiwanese DRAM vendors expect to have strong revenue growth momentum in 2H’09

Continuously with the strong upward pricing trend from 1H’Jul, both DDR2 and DDR3 spot price hikes to the 12-months record high recently. DDR2 1Gb eTT spot price rose 63% to US$1.71 in 9/15 from US$1.05 in 7/15. With rebounding DRAM price, Taiwanese DRAM vendors record 10% and 19% monthly revenue growth for July and August respectively. (Figure-1)

Along with warming global economy, PC-OEMs reveal the positive view toward the PC sales and aggressively replenish inventory due to the Windows 7 effect. Therefore, started from July and benefited from recovering demand, tight DRAM supply strengthens the DRAM price growing momentum and boosts the sales. Nanya announced the 1-year record high NT$3.7B and this is attributed to not only the upward trendy price but also the recovering utilization rate to 60% from Inotera. PSC also recorded NTD$2.6B for August revenue, which is 10-month record high. Other Taiwanese DRAM vendors also have good operation performance. Average monthly revenue growth are 3%-10%.

Wafer-in production has been gradually enhanced, 4Q09 wafer-in production is expected to hike to the peak in 2009

Wafer-in production for Taiwanese DRAM vendors increased apparently during past two months due to the rebounding DRAM price that the August production has reached 338K, which is about 86% growth compared with the lowest status in February this year. September wafer-in production of PSC will be up to 100K while utilization rate has been enhanced to 77% from 23% in 1Q09. Besides increasing production in DDR2, DDR3 chips have also been produced in small volume. Rexchip also pull back its utilization rate back to full capacity-80K/M. About 15%-20% of capacity will be scheduled from DDR3 at the year end. As for Nanya, mass production under 8nm Micron technology in Fab3 has been completed and 50nm technology will be migrated at the year end. Wafer-in production will be scheduled to reach full capacity-20K/M. Wafer-in production of Inotera sharply dropped to 50K/M due to the Qimonda’s bankruptcy that overall wafer-in production in August will reach 100K since Micron will share 50% of Inotera’s output in 3Q09 (Figure-2).

According to DRAMeXchange, 4Q09 average monthly wafer-in production will be up to 365K for Taiwanese DRAM vendors, which this amount will reach year-high record. The growth rate is about 68% compared with the production situation in 1Q09. Due to the aggressive DDR3 migration for Samsung, Hynix and Elpida, DDR2 output is expected to drop in 4Q09. As for Taiwanese DRAM vendors, besides Nanya and Inotera will still focus on the commodity DRAM, other vendors such as PSC, ProMOS and Winbond will expand their product mix into foundry and specialty DRAM business to lower the exposure in commodity DRAM. Accordingly we expect Sales and profitability for Taiwanese DRAM vendors will likely be improved in 2H’09.

Tight NAND Flash supply will continue to November; Strong NAND Flash demand for smartphone and MP3/PMP system customers

Since cellular makers launched series of new smartphones with embedded 8GB to 32GB NAND Flash and MP3/PMP makers recently launched new revised device equipped with embedded 16GB-64GB NAND memory for the sake of hot season demand in 2009, this circumstance has credited to NAND Flash vendors to come out with new channels of their output. Different from the over supply during 2006~2008, NAND Flash price has steadily remained stable upward trending in 2009 mainly due to the discipline supply control by NAND Flash vendors. Toshiba has lowered the utilization rate to 70% for their two 12” fabs and other vendors lowered utilization rate in 1H’09 as well. The discipline supply control reduces the risk of over supply. However, NAND Flash vendors have adjusted up their utilization rate properly to handle the inventory replenishment for year end hot seasons. System customers such as Apple, Nokia, Samsung, Sony, Palm and Microsoft are the priority for NAND Flash supply.

So far we see this strategy is positive for NAND Flash vendors. Despite of less NAND Flash consumption respectively than memory card and UFD together, major NAND Flash vendors such as Samsung, Toshiba and Micron still regard those smartphone and MP3/PMP makers are the top priority customers. In 3Q09, NAND Flash consumption of major smartphone and MP3/PMP vendors accounts for 30%~32% of total NAND Flash demand and will be estimated to reach to 40%~42% in 4Q09, which is benefited from the climbing content per box of smartphone and MP3/PMP and higher shipment forecast in 4Q09.

We expect the tight NAND Flash supply will continue until 2H’Nov, that is, NAND Flash price will remain stable and unlikely to drop in coming one to two months in general. Table-1 is our expectation on top 5 accounts in NAND Flash consumption in 4Q09. Apple consumed more than one-fourth of total NAND Flash output due to 4Q09 iPod shipment forecast is expected to double the amount in individual quarter in year 2009 and iPhone 3GS launch in China market in 4Q09. However, we will keep continue to watch since 4Q09 NAND Flash market will be impact by iPhone sales condition in China.