DDR2 1Gb price near new historic low at US$1.0; Salvation possible only through continued production cut

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%.

Despite the production cuts, spot price for DDR2 1Gb eTT last week declined another 3.8% last week (10/21-10/27) from US$1.05 to US$1.01 as market pessimism took over when Samsung announced its revenue for memory has slipped. DDR2 667 1Gb also fell around 6.6%, making both the DDR2 667 1Gb eTT and original brand maker die price falling closer to history lows of US$1.0 and far below cash cost of US$1.3-1.5 estimated by DRAMeXchange.

Contract price continued its falling trend late in October with ASP for DDR2 667 1GB and 2GB modules falling to US$12 and US$24 respectively for a decline of more than 10% MoM and a decline of more than 45% compared with the July price of US$22 and US$44. Given PC market will begin to move into slow season in November and the drastic fall in global demand, Contract price may fall further, but decline shoud be limited, as US$10 /1GB is already at the cash cost level.

With the continue fall in DRAM price, DRAM makers are now experiencing more losses for every chip sold. The severe shortfall between supply and demand has led the DRAM industry to a life-and-death situation where production cut is no longer merely a tool to increase price but a tool to conserve cash in order to survive. The old method of transitioning to more advance process in order to cut cost and raise competitiveness also will not work anymore as average cost (material cost plus package and test) of DDR2 1Gb using 70nm process is roughly US$2.4 and US$1.9 if upgrade to 6Xnm. Even if we use 5Xnm, the average cost will be around US$1.4 while current DRAM die price is roughly US$1.0; therefore, there is no way DRAM makers can turn a profit even if 5Xnm process if used. Moreover, 5Xnm process will require more cash invested when most DRAM makers are facing a cash crunch. Besides, 5Xnm will produce up to 30-40% more dies than 6Xnm process and further swamp the market with unsold dies given the weak demand. In short, although more advanced process can lower die cost and increase competitiveness against your competitors, continued production cuts is more urgent in order to restore market balance. From a market perspective, if DRAM industry reduces production by as much as 30% in the short run, DRAM makers will need to consider continuing to reduce production by 20% on a long term basis in order for DRAM industry to come back to health.

Intel reveals Next Generation Mobile and Storage Technology; 2H Oct. NAND Flash Contract Price shows signs of stability in the short term

During the Intel Developer Forum (IDF) Taiwan at the Taipei International Convention Center, Intel revealed its concept for the next generation mobile computing platform and the new generation storage device. Combining current market needs, innovative technology applications, and environmental friendly concepts, Intel introduced Calpella – Nehalem based mobile computing platform – and UrbanMax – a new mobile computing concept in addition to a high performance SSD as the theme to this year’s IDF.

In 2009, Intel expects to launch the Nehalem based Calpella platform featuring better system integration and more innovative power saving schemes such as Integrated Power Gate Technology for memory system, cache, and IO system which boosts energy efficiency by dynamically shuts off subsystems not in use according to users’ habit. UrbanMax, on the other hand, is a design based on Small Form Factor (SFF) technology to target Web 2.0 users. UrbanMax platform consists of a new SFF Intel processor, High Performance SSD, HD Playback and an 11.1”touch screen.

Intel continued to sketch out its future concept of what an MID should be by continuously creating potential applications for MID. Applications such as community network, user-created web content, and location-based service will help proliferate the use of MID as the trend to use mobile internet takes off.

At IDF, Intel also introduced its own SSD solution and demonstrated Intel’s solution on SSD-related issues such as reliability, life cycle, and software/hardware integration. Comparing Intel’s X25-E Extreme SATA SSD with other current SSD offerings in the market, Intel’s solution features capacity of either 32 or 64GB and SATA1.5/3.0 interface with read/write speed up to 250MB/s and 170MB/s respectively. Combined with a high degree of integration with VISTA, Intel’s SSD solution has excellent potential in common notebook and data storage market.

2H October NAND Flash Contract Price Update

2H October NAND Flash contract price has remained stable reflecting gradually lowering inventory level from down stream vendors. With earlier reduction announcement from upper stream suppliers, relatively stronger seasonal restocking demand and increasing NAND Flash applied products with higher density, NAND Flash price has shown relatively stable compared with earlier period. With relatively improving confidence in the market, we expect NAND Flash contract price to stabilize for the short term.

Worldwide Q4 PC Shipment Target Lowered

PC market is hit with more news of weakening demand as more PC makers reveal in their Q3 investors’ conference.

Take NB market for example, US demand for NB began weakening in Q2 this year followed by EU, bringing pessimism to the originally optimistic segment. PC makers had hoped the shopping season beginning second half of the year and the emerging market to pick up the slack and support demand in the NB market; however, that hope had been dashed after late October as NB demand from both shopping season and emerging market failed to materialize. For example, Compal, which had hoped for a 15% increase in Q4 shipment, has lowered its expectation to 5% in today’s(10/27) investor conference.

DT segment is even worse than NB. Although Intel will launch its new Core i7+X58 in November, given the fact the new product offers little technology motivation as the Core i7+X58 is more a defensive product during transition, the new product launch offers little stimulus to the overall DT demand.  Moreover, demand for DT has been cannibalized by Notebook and, most recently, Netbook. Because growth in mature markets has long been taken up by Notebooks, demand for DT has come mostly from emerging markets in recent years. With the introduction of Netbook which fits the low price demanded by emerging markets, we predict worldwide DT shipment growth in Q4 to turn negative instead.

The main reason for the disappointing Q4 is the increasingly volatile global economy which also propagated to emerging markets. With layoffs announcements across major economies around the globe, consumers are more inclined to delay or do without major purchases for now.  Q4 Worldwide PC shipment growth target not including Netbook will be lowered from original estimate of 9% down to 4-6% for a shipment volume of 76-78M.