After Qimonda officially declared filing bankruptcy protection on January 23rd, with the Chinese New Year Holidays passing by, the DDR2 1Gb eTT chip price jumped from US$ 0.96 on February 2nd to US$ 1.2, with the upside range of 25%. But the high price only sustained for almost one week and later dropped all the way to US$ 0.87 in two weeks (2/6-2/19). Comparing to the high US$ 1.21 in February, the price plunged 28% and fell below the January DDR2 1Gb eTT average price US$ 0.98. Last Friday, the DDR2 1Gb eTT chip price once again quickly rallied and the chip price hit US$ 0.96 with a 10% price increase, and the DDR2 667Mhz 1Gb only slightly up 4.7% closing around US$ 0.89.
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Under the influence of global financial crisis, the traditional 4Q08 hot season demand was far below expectation. The NAND Flash suppliers were forced to continue their price cut strategies in order to reduce inventory and stimulate buying under the pressures of their sales performance and excess inventory.
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The DRAM market has been in oversupply situation and in cyclical downturn for almost two years. The price fell from profitable level to lower than the cash cost, and then even lower than the material cost. Since the Taiwanese DRAM vendors don’t have their own technology, often times the capacity is the stake that is to exchange for the technology with their partners. Therefore the CAPEX of the Taiwanese vendors often surpass their technology partners. Although this kind of relationship brings profit to both sides during the cyclical upturn, it is not easy to control the speed of cash outflow in the cyclical downturn and can easily trap the vendors in operating crisis.
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German DRAM vendor Qimonda declared bankruptcy one hour before the Asian market closed on January 23rd 2009. After coming back from the Lunar New Year holidays, the DDR2 1Gb spot chip price went up 25% in one single trading day and closed at its high US$ 1.2.
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The spot market trading was slow last week, DDR2 1Gb eTT slightly dropped to US$ 0.97 with a range of 4%. The DDR2 667 Mhz 1Gb remained unchanged US$ 0.85. From the market perspective, since it is close to the Chinese New Year and the New Year inventory buying momentum has come to an end, the trading volume had shrunk. The spot market might wait after the Chinese New Year holidays end to see the trading volume to go up again. In the contract market with the unchanged 1H January contract price, which DDR2 667 Mhz 1GB and 2GB average prices were US$ 8 and US$ 16, also stopped the 7 month downtrend. Recently, it is said that certain Korean vendor is willing to cut 10% to 20% capacity. The contract price bottom is becoming firm. The January contract price is hopefully to remain stable and may start a real rebound in February and March.
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The DRAM chip price has plunged since the beginning of 2007 and suffered from loss for almost seven consecutive quarters. WW DRAM vendors have lost US$ 10 billion in 2007 and 2008, and the Taiwanese vendors have lost US$ 4.2 billion. The main reasons were the optimistic view toward the memory demand and the huge 12 inch capacity expansion in 2006. The new capacity started production in 2007 consecutively resulted in severe oversupply, and has caused the DRAM price to drop quickly until now. According to the DRAMeXchange statistics, from 1Q07 to 3Q08, the WW 12 inch DRAM fabs had grown 56%, and 57% of the 8 inch Fabs had retired. The total average capacity had grown 21%. If we analyze this from another angle, along with the crashing DRAM chip price and the increasing penetration rate of Windows Vista among OEMs, even that OEM had considerably raised the DRAM content per system to over 2 GB among PCs in 2Q08, it still could not follow the speed of DRAM capacity expansion.
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The DRAM chip price has plunged since the beginning of 2007 and suffered from loss for almost seven consecutive quarters. WW DRAM vendors have lost US$ 10 billion in 2007 and 2008, and the Taiwanese vendors have lost US$ 4.2 billion. The main reasons were the optimistic view toward the memory demand and the huge 12 inch capacity expansion in 2006. The new capacity started production in 2007 consecutively resulted in severe oversupply, and has caused the DRAM price to drop quickly until now. According to the DRAMeXchange statistics, from 1Q07 to 3Q08, the WW 12 inch DRAM fabs had grown 56%, and 57% of the 8 inch Fabs had retired. The total average capacity had grown 21%. If we analyze this from another angle, along with the crashing DRAM chip price and the increasing penetration rate of Windows Vista among OEMs, even that OEM had considerably raised the DRAM content per system to over 2 GB among PCs in 2Q08, it still could not follow the speed of DRAM capacity expansion.
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In the spot market, the DDR2 1Gb eTT chip price started rallying since mid December and the has gone up from the lowest of US$ 0.59 to recent US$ 0.91, a range of 55%. The DDR2 667 Mhz 1Gb chip price also rallied from US$ 0.58 to US$ 0.77 with the range of 33%. From the market aspect, although the U.S and the European markets were closed during Christmas and New Year holidays with only Asia left to play the role, the chip price still remained steady without sharp declining. DRAM spot prices will remain in a steady uptrend. Furthermore, the spot market focused Taiwanese DRAM vendors held their shipment volume control direction unchanged since the current chip prices were still lower than their cash cost which was about US$ 1.3 to US$ 1.5. In order to keep the level of their cash in hand and the chip price, the necessity of shipment control remains.
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Looking back in the year 2008, the WW DRAM industry was facing severe oversupply and industry structural problems. In 1H08 most 8 inch fabs switched to non-DRAM productions one after another. Retiring the 8 inch DRAM capacity and stepping forward to the 12 inch capacity in order to lower the DRAM chip cost, the vendors was claiming that they will migrate to 50nm process in 2009. At this point the whole industry believed that the recovery will come in 2H08. After all, the global financial crisis once again pushed the DRAM industry into the frozen period, and not only the DDR2 1Gb eTT chip price fell once below its historical low US$ 0.58, but the net cash outflow put the DRAM vendors in a devastated position.
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After the DDR2 667Mhz 1Gb chip price plummeted through US$ 1 cash cost in October and kept falling to the vendor’s material cost US$ 0.6, the DRAM vendors could not tolerate the loss any more and cut more and more output. According to the statistics of DRAMeXchange, the Taiwanese vendors cut almost 30% of their output in terms of 12” equivalent in 4Q, the Korean vendor Hynix terminated its 8 inch fab output and cut 20% of its 12 inch fab output. Although Samsung hasn’t decrease its output, the total output of the Korean vendors decreased 16% in 4Q. The Taiwanese vendors will elongate the Chinese New Year holidays to two weeks In January 2009 hence the 1Q output will keep decreasing. According to the estimation of DRAMeXchange, the output decreasing effect will last with the WW DRAM output cut in 1Q09. Along with the global economic downturn and the decreasing PC sales in 1Q09, the contract DRAM price may reach bottom but the upside momentum will be comparatively weak. On the spot price side, the upside momentum is higher with the decreasing output of the major vendors and Taiwanese vendors, and it may has chance to reach US$ 1. (Figure. 1)
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