To DRAM industry, 2007 and 2008 are absolutely considered the down years. Over expansion by the DRAM makers resulted in an over-supplied market where DDR2 die price fell sharply. With the expectation of lower PC sales in Q4, DRAM inventory is expected to continue its climb and DRAM price is expected to break new lows. Up to this point, DDR2 1Gb eTT spot price is now at 1.15 USD and DDR2 667 1Gb is down to 1.19 USD. Even though DDR2 price is already below its variable cost, for DRAM makers, developing DDR3 remains the key factor to winning the next war.
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DRAM makers have announced cutbacks in production since September – PSC, Elpida, and Hynix have separately announced cutbacks on September 8th , 9th , and 18th. If the cutbacks proceed as scheduled, we expect to see a reduction in worldwide DRAM production by 5 to 6% around end of October to November. Spot market was encouraged - rose from 1.32 USD on September 8th to 1.4 USD on September 10th for an increase of 6% - initially when the first cutback was announced. However, the rebound was short-lived; by September 11th, price on spot market began to fall again. After the last announcement of cutback from Hynix, spot price failed to continue the rise with average price increasing slightly by 0.01 USD then weakened by the continued slow demand. Overall, spot market demand continued to weaken in September in spite of announcements of the production cutback.
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DRAMeXchange expects some players with weak cost structures that may follow the production cutback trend, thus, DRAM output is estimated to be reduced by 6-8 % in total.At present, the DRAM industry is not about winning or losing of companies unless the DRAM output is adjusted. Instead, it will be a loss encompassing everyone, says DRAMeXchange.
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PSC and Elpida have announced respective DRAM output cut recently. Amid the reduction, global DRAM output is estimated to be reduced by 2-2.5% accordingly. Of which, PSC will cut output by 10-15% and Elpida will cut its Hiroshima, Japan fab output by 10%. PSC and Elpida house a respective output of 130k and 115k, respectively, representing a global market share of 20%.
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Powerchip announced during the late afternoon on Sep.8 that it plans to cut its DRAM capacity 10%-15% in Q408. Currently, Powerchip’s fab output ( P1+P2+P3, including the portion allocated to Elpida ) accounts for nearly 10% of the total worldwide DRAM output. The 10%-15% capacity cut is expected to reduce the worldwide output by 1%-2%.
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Demand for DRAM does not recover after the Beijing Olympics. By seeing their expectations being failed, some memory module makers thus started initiating price cut at China. Therefore, price of DDR2 1Gb eTT has dropped by an approximate of 7% within single day to US$1.51, marking a new record low since Nov 27 (at US$1.57). Price of DDR2 1Gb eTT has declined by 20% throughout August. And that price of branded DDR2 667 1Gb has also dropped to new low at US$1.65 in the same period.
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Despite DRAM makers cut their capex by 40% YoY in FY08 after suffering losses from 2Q07, DRAM supply bit growth is still expected to grow by ~65% YoY, primarily driven by aggressive expansion at Samsung and Elpida. Thanks to a steep price cut, memory content per box is also expected to have a big boost. But when over half of the shipped PCs come with 2GB or above memory density, magnitude of growth in terms of memory density will slow down.
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In the week August 12-18, price of 1Gb eTT DDR2 has dropped by 1.7% from NT$1.79 to US$1.76, whereas price of 512Mb DDR2 eTT has also felt by 3.7% from US$0.81 to US$0.78. Price drop was relatively mild in the branded segment. Price of branded 1Gb DDR2 667 was flat at US$1.86 and price of 512Mb DDR2 667 was down 2.4% from US$0.85 to US$0.83.
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While DRAM industry posted a record YoY bit growth in FY07, corresponding A&T (assembling and testing) houses were subjected to stiff challenges as a good elasticity on both pricing and production is required.
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DRAM spot pricing has been under correction pressure and consolidating since early July. DRAM supply was sufficient in July. But as demand side senses that supply growth may slow down, a rebound of DDR2 eTT 1Gb price took place and once hit US$1.84 on August 1, close to the highest price in mid July. Yet, the upward momentum did not sustain as transaction was suppressed by the relatively high inventory at module houses, agents and speculators.
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