Gradual DRAM inventory drop should help prices slide more slowly

With DRAM makers selling their chips at lower prices to remove their excess inventory, the 1HApr contract price slid to USD 22-24. The inventory clear out has gradually helped the DRAM industry bounce back to a more healthy state. Nevertheless, as the 1HApr contract price has dropped near the cost structure or even the cash cost of some DRAM makers, they are expected to incur big losses. Any additional declines may prompt some manufacturers to begin reducing their DRAM output, in an attempt to limit the price drop.

After experiencing a temporary rebound, the DRAM spot price has started to weaken again. Amid the national holidays in the Hong Kong and Taiwan markets, minimal transactions were seen. The DDR2 512Mb 667MHz chip price stayed near the USD 2.9 level, while the DDR2 eTT slipped to USD 2.65.

As for the contract prices, they continued to decline in 1HApr. The negotiated price for DDR2 512MB stood at USD 22-24, down 14-15%. This translated to a price tag of USD 2.4-2.7 for each chip. With the contract price evidently lower than the spot price, it negatively affected the strength in the spot price rebound. Nevertheless, the clearing out of the excessive inventory by the DRAM makers has at least helped the industry to return to a more healthy state.

According to Micron's Q2 results (12/06-02/07), in the wake of the tumbling DRAM prices and unfavorable CMOS market conditions, its revenue reached USD 4.27 billion (QoQ:-7%). Its gross margin hit approximately 25%, while its operating margin stood at -2.4%. Overall, it incurred a net loss of USD 52 million. Micron is currently working very hard to raise the output ratio from its 12 inch fabs, and further drive down its costs by accelerating its migration to the 78 nm manufacturing process.

By looking at the current DRAM industry outlook, a handful of DRAM makers are expected to post serious losses, as the current 1HApr contract prices drop below their fully loaded costs (USD 3 or above ) or near their cash costs. If prices continue to tumble, they may be forced to begin reducing their DRAM output, in order prevent prices from declining too severely. 

Prices likely to increase as insufficient NAND Flash supply continues in the short term

NAND Flash prices continue to maintain an upward trend, as it began to increase from March. Unless major suppliers boost their output in the near future, the overall market supply should remain insufficient. Thus, DRAMeXchange believes prices are unlikely to tumble in the next one to two weeks.

According to our observations, the NAND Flash capacity in April is relatively the same as in March. Growth in consumer end products that employ NAND Flash as the storage medium do not appear to be slowing down as well. With a major MP3 manufacturer consuming a significant amount of such chips, it has become evidently harder for other downstream memory card, UFD, MP3/PMP manufacturers to secure a sufficient amount. Coupled by the stable sales of such devices, some downstream vendors are having trouble acquiring enough NAND Flash chips for their products.

In the short term, suppliers do not seem to have any plans in increasing their NAND Flash capacity. Even if they started to readjust their production now, it will take 1 to 2 months before it will begin to affect the market supply. If the NAND Flash end market experiences minimal changes in the next 1 to 2 months, there is a strong chance for the chip prices to increase further.

Finally, a comparison of the listed NAND Flash prices from the last session on Apr 2 and Apr 9 is shown below. Spot prices of the 1Gb chip continued to stay at US$2.34. For 2Gb, they decreased 2.3% to US$2.52; 4G up 0.4% to US$4.92, 8Gb down 1.2% to US$9.18 and 16Gb up 2.5% to $17.66.