July 1, 2008 – A quick scan of news and analyst reports this week indicates DRAM pricing is firming up, but NAND flash is falling fast due to sluggish demand, which for the first time in a while is lacking a familiar driver.
The seasonal holiday build season has begun, and the DRAM sector is gaining strength again as PC vendors stocking up for systems builds targeting first the back-to-school and then year-end holiday period. Gartner notes that DRAM contract prices for mainstream 1Gb density parts rose nearly 6% in June, and prices for the 512Mb density component are up ~12%, after a >6 month slump.
DRAM spot market pricing, meanwhile, was down across all densities and technologies in the past week, with pricing slipping slightly and the gap between contract and spot prices widening to 3%. “The next few months will decide the direction of DRAM pricing,” the Gartner analysts wrote.
Average DRAM spot pricing, 65-week history. (Source: Gartner)
Market research firm DRAMeXchange, poring over its own pricing data over the past week, attributes the DRAM spot market softness to a buildup caused by Rexchip’s rampup in 1H08, and on the demand side partly to blame is tighter restrictions from China’s government about customs checks prior to the Beijing Olympics, which has caused difficulty for distributors (parts that couldn’t get into China ended up on the spot market). Assuming no underlying problems with demand, that situation should work itself out after the summer by market dynamics, the firm says. “Unless the demand of DRAM is far below expectation, the spot price should consolidate and go up again,” with a ~10%-20% increase for 1Gb eTT devices.
The firm projects that prices will stabilize in mid-3Q08 as the seasonal cycle progresses; it also sees about 12M units of 3G iPhone shipments helped by global telcos bundling sales for more attractive options, and an emergence of a low-cost PC market with shipments of 8M units.
Price trend of 8Gb MLC NAND flash, March-June 2008. (Source: DRAMeXchange)
NAND sector slump
The NAND sector is still suffering from oversupply and weak demand; prices for mainstream MLC 8Gb and 16Gb devices fell nearly 10% and 18% during the month of June, respectively. “Steady price declines that started in the fourth quarter of 2007 and have persisted through the first six months of 2008 are an ominous sign to the fundamentals of the NAND flash market,” Gartner analysts wrote. Aggressive capacity expansion and “irrational market share posturing” are causing even the biggest suppliers to lose money, but prices (and profitability) should recover in 3Q08 with spending and capacity pullbacks in place.
Average NAND flash spot pricing, 65-week history. (Source: Gartner)
Gartner spotlighted recent fiscal results from Micron that illustrate the tough NAND environment right now: NAND prices fell 20% in the May-ending quarter (and are expected to fall another 20% in June) while NAND bit shipments rose 40%. (Cost reductions of 25% are expected to help the company as it beefs up its new 34nm process capabilities to 50% of overall capacity. However, exploiting these cost reductions will require expansion beyond its Singapore site “for Micron to exploit its planned cost reductions in the future, it must invest in its next fab beyond Singapore; this presents a challenging endeavor, given the lack of profitability over the last few years and again in 2008,” the analysts write.
“With prices falling steadily since the fourth quarter of 2007, vendors are desperately working on cost reductions, but without cooperation from the demand side, the pricing environment will continue to be turbulent,” the analysts write. “Given the demand environment, the industry needs to pull back even more to avoid a turbulent fourth quarter and start to 2009.”
DRAMeXchange notes that memory purchasers aren’t eager to buy in an unsettled market where downstream customers aren’t eager to buy. The firm also blamed high oil prices pressing on consumer purchasing decision, as well as a “pessimistic economic outlook that implies an absence of a powerful catalyst to consumer electronic sales” (again, like the “Apple effect”).
No “Apple effect” this year
Where’s the missing NAND demand? In recent years a significant driver has been consumer hunger for Apple products such as the iPhone and MacBook Air. But this year, despite a new 3G iPhone and a solid-state storage option for the laptop, the NAND market isn’t enjoying the same bounce, according to analyst firm Semico Research. Blame the consumer sector, which is still reeling from the US subprime mortgage debacle and rising gas prices, which are a 1-2 punch to consumer confidence and disposable income, which translates into lower electronics sales, the firm writes in a new report.
The primary driver of flash memory demand today is removable memory, used in everything from cell phones to digital cameras and other devices, and USB drives. Looking through 2012, the sector will continue to leverage the computing segment, with USB drivers, hybrid drives, and solid-state drives in notebooks, servers, mobile and enterprise storage, and data centers.
Despite the slow start, though, the NAND market should still reach double-digit growth in sales this year (13%), the firm projects, though that’s half what it was a year ago (25% in 2007). Shipments are expected to surge nearly 41% to 3528.5M units.