August 17, 2012 — Barclays Capital analyzed the underlying factors for current NAND prices, and where the NAND industry is expected to go in the near future. Factors include the Apple Inc. iPhone 5, reduced NAND production at key chipmakers, and changes to the DRAM sector, among other influences.
According to DRAMeXchange, which provides market intelligence services on memory chips, H1 August contract prices of NAND flash memory for cards largely stayed flat H/H, despite supply control at manufacturers, such as Toshiba cutting NAND production by 30%.
Barclays Capital analysts say this was caused by weaker-than-expected seasonal demand pick-up; excessive inventory at NAND makers; and delayed and smaller-than-expected iPhone 5 building during Q3 due to yield issues with the new in-cell touchscreen architecture.
Although the price trend of embedded solutions is not clear yet, the overall price recovery of NAND flash is slightly weaker than Barclays’ expectation.
1HAug DRAM contract price likely to show another moderate decline amid inventory correction. Barclays’ preliminary channel checks suggest average selling prices (ASP) of commodity DRAM will remain under pressure for a while, given weaker-than-expected back-to-school PC demand, flush channel inventory, and delayed and smaller-than-expected iPhone5 building during Q3. DRAM prices should stabilize from September, with recovery starting in October, though demand remains unpredictable.
Will Sharp be able to execute as required for full scale of iPhone-5-related memory demand? Demand for Apple’s iPhone 5 will be a key swing factor for the memory industry through the end of 2012. Barclays calculates that 10 million units of iPhone 5 would account for 2% of total DRAM demand and 4% of NAND revenue in Q3 and Q4. In-cell display is the key bottleneck of iPhone 5 production. Barclays sees both LG Display and Japan Display likely to start small-scale volume production in August, with full-scale ramp-up in September. However, uncertainties remain regarding Sharp’s execution. Given that the capacity of each panel maker (LGD, JDI, Sharp) is estimated at around 7 million units per month, with an initial yield ratio around 80% and 10-20% of additional yield loss at the final assembly process, Barclays estimates iPhone 5 production could reach around 15 million units in Q3 and 45 million units in Q4. Any kind of potential miss in execution at panel makers could result in lower-than-expected iPhone 5 production for the rest of the year.
Further supply cut for DRAM and sustainable discipline required for NAND. Barclays discounts speculation regarding supply cuts at DRAM manufacturers, including Elpida, but says these cuts are needed for meaningful recovery of DRAM prices given the weaker-than-expected demand.
On the NAND flash side, SEC’s capacity reduction, Micron and Toshiba’s utilization cut and Hynix’s revision of capacity expansion are boding well for healthier industry dynamics. Barclays is still concerned about Toshiba’s supply discipline, as channel checks suggest that the company is not slowing down its wafer procurements yet. An earlier-than-expected normalization of utilization rate at Toshiba could delay the full scale recovery of the NAND flash industry.