DRAM contract price posts 10% sequential decline in 2H Dec; Some OEMs start pre-stock during despite industry downturn; 2008 to be a vital year to outgrow winners

DRAM spot prices shows a temporal stability in the week Dec 17-24 with eTT parts posted sequential gain while branded parts quoted stable. Contract price in 2H Dec is in line with expectation as holidays lulls consumption.

Price of DDR2 512Mb eTT appreciated by 7.7% on week and closed at US$0.84 on Dec 24 where price of DDR2 1Gb eTT parts was notionally flat with a drop of 0.6% only and closed at US$1.69. In the branded chips segment, price of DDR2 512Mb appreciated by 1% and closed at US$0.92 where price of DDR2 1Gb was down only 0.5% and closed at US$1.87.

Despite consumption for demand is temporarily put on hold in Europe and the US region as projected, the lower-than-expected supply volume of DDR2 512Mb eTT parts at channels, couples with demand in Asia (including Japan), resulted in a price rebound in return. Price has once climbed to US$0.85 last week. The price stability is expected to maintain in the last week of 2007.

In the contract price segment, price of DDR2 667 1GB DIMM was quoted at US$17 range as expected, representing a 10% sequential drop. By breaking the module price in die form, price tag for each die shows that component price for branded DDR2 667 1GB module is edging to DDR2 eTT price level, and the price is becoming more competitive to branded chip as available in the spot market. The sequential price fall is logical amid slowing-down demand during Christmas. As marketers generally project a price rebound in 1Q08, some OEMs have start piling stocks to meet January demand.

As DRAM suppliers still fail to reach a consensus over output trim, DRAM price correction thus still underway. DRAM suppliers are still bearing a heavy financial burden. Technology edge and funding thus served as the two fundamental criteria to judge their position in this race.

Speeding up migration of 1Gb DRAM production on 70nm node is critical. Those who are still fabricating their chips on 90nm or have not yet migrate to produce 1Gb component, will see aggravated cost pressure.

When ASP of DRAM drops below cost level, this indicates that DRAM makers are making more losses by selling more chips. When the fund that they house on hand diminishes, some are either being expel from the race or force to enact new strategy. The year of 2008 will be a vital year to judge success of each DRAM players.

China market to be the major demand for NAND Flash after year-end holidays; NAND Flash contract price roughly declined by 0-25% in 2H Dec.

Sales of memory cards, UFDs, and other NAND Flash related products will peak at the year-end holiday. Most of the NAND Flash downstream vendors started their annual inventory check from last week, while the demand for NAND Flash chip will slow down starting from the last week of 2007 accordingly. Memory card and UFD makers have cautiously kept lower NAND Flash inventory level since December. Some larger memory card & UFD makers may build up to 3-day inventory to meet the requirement of production, while smaller vendors would rather stock up inventory according to NAND Flash-related product orders at hand. Most of the makers attempt to lower their inventory level in order to cope with the coming slow season.

Sales of NAND Flash related products will peak at the X’mas & year-end holidays in Europe and US markets. However, Asian & emerging markets will be the key consumption areas for NAND Flash related products in 1Q08, especially in China market. Traditionally, Chinese Lunar New year starts from early February 2008. Chinese consumers also would like to purchase electronics products as the gifts both for themselves or the relatives during the Lunar New Year holiday, while companies may  purchase those products as prizes for their year-end party activities. Both of those acts are likely to boost the demand for NAND Flash related products. As a result, China market will be the major demand for NAND Flash related products in early 2008. If the Chinese Lunar New Year holidays enjoy strong sales, it can help stablise NAND Flash price in 1Q08.

NAND Flash contract price commentary

Upcoming seasonality slow discouraged MLC NAND Flash contract price trend in 2H Dec, as evident in the averaged 15-25% sequential price drop. In light of a possible oversupply in 1Q08, suppliers brought forward their strategic price adjustment in December by reducing quotes for MLC NAND Flash to their contract customers. This price adjustment comes in line with customers’ year-end sales promotion on one hand and is driven by the attempt to trim inventory at supply side on the other hand. Contract price drop for SLC NAND Flash came relatively weak than MLC parts at an average drop of 0-10% only. The mainstream role of MLC NAND that implies less SLC output is the primary reason for this trend. Given that the latest NAND Flash contract price trend has very much factored in the upcoming seasonality weakness, we expect the magnitude of price fall to be relatively limited in 1Q08.

NAND Flash spot price review from 12/17 to 12/24

Finally, DRAMeXchange compares the closing spot price of NAND Flash chips categorized by their capacity from 12/17 to 12/24. 1Gb SLC price fell from US$2.4 to US$2.2, a drop of 8.3%. 2Gb SLC fell from US$3.71 to US$3.46, a drop of 6.7%. 4Gb SLC fell from US$6.29 to US$6.03, a drop of 4.1%. 4Gb MLC fell from US$3.49 to US$3.16, a drop of 9.5%. 8Gb SLC fell from US$11.98 to US$11.5, a drop of 4%. 8Gb MLC managed to maintain quote flat on a sequential basis and closed at US$3.34. 16Gb SLC price fell from US$25.1 to US$24.4, a drop of 2.8%. 16Gb MLC fell from US$6.07 to US$5.94, a drop of 2.1%. 32Gb MLC fell from US$12.23 to US$12.1, a drop of 1.1%