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【Market View】Major events in the 2008 DRAM industry; End application demand remains weak, 2009 NAND Flash demand bit growth being revised down to 81%


Published Dec.30 2008,14:07 PM (GMT+8)

Major Events in the 2008 DRAM Industry

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. After the operating crisis emerged, the recent consolidation has started and hoping that it can bring the market mechanism back to normal again. Here is a list of industrial major events and trends of 2008 complied by DRAMeXchange. We hope the DRAM industry to have a new scene in 2009 after all the suffering in 2008.

A. DRAM chip price has dropped nearly 75% in 2008 and the industry total loss from 1Q08 to 3Q08 was more than US$ 8 billion.
DRAM 667 Mhz 1Gb chip price fell from high of US$ 2.29 to the low of US$ 0.58, a almost 75% drop range. The price was not only lower than the cash cost (exclude depreciation) US$ 1 but also close to the back end testing and packaging price US$ 0.6 to US$ 0.7, and expose the DRAM vendors to the operating crisis. The WW DRAM industry lost US$ 8 billion in the first three seasons of 2008.

B. Nanya gave up Qimonda, Micron officially entered Inotera and gained half of its capcity.
Nanya officially announced its alliance with Micron on March 3rd, and will co-develop the products of under 50 nm process. This also means the relationship between Qimonda and Inotera had changed. On October 12th, Micron officially announced it gained the 35.6% Inotera stake of Qimonda which worth about US$ 400 million. The Micron technology camp officially formed.

C. The stack technology took the lead and trench technology faded.
In 2006, the trench technology camp once accounted for 23% of the market share. Along with the technology development bottle neck, the stack technology fell six months to one year behind. In 2008, the market share declined to 8%, which means the stack technology had gained 92% market share. In 2008, Qimonda announced its new Buried Wordline technology, the trench technology will be history.

D. Oversupply drove the capacity cut
After PSC first announced capacity cut this September, Elpida, Promos, Nanya, and Inotera continued to follow. WW DRAM capacity decreased nearly 20%. Recently the Taiwanese vendors are the most aggressive ones to cut capacity, and have cut about 29% capacity which is the most among all vendors. Capacity cut not only can reserve cash for the vendors to survive through the industry winter, but also can speed up the market inventory consumption, lower the inventory level, and let the market go back to its normal market mechanism.

E. The uniting of Taiwanese, American, and Japanese DRAM vendors, to fight against the Korean vendors
After Samsung announced it’s 100% annual bit growth target, with its title of WW DRAM leader, Samsung would like to see some other DRAM vendors being driven out of the market. The Taiwanese vendors bonded themselves closer to their technology partners Elpida and Micron with closer cooperating relationship in order to survive, forming two alliances with Micron and Elpida as the leaders, to fight against the Koreans.

F. Government bails out the DRAM industry
The war among DRAM vendors has become a war between nations. German company Qimonda has gained support from Saxony government, bank, and its mother company Infinion with the amount of US$ 455 million. The Korean company Hynix also has received US$ 550 million support from its creditor banks. The Taiwanese government has also prepared its NT$ 100billion National Development Fund to bail out the Taiwanese DRAM industry.

End Application Demand Remains Weak, 2009 NAND Flash Demand Bit Growth Being Revised Down to 81%

Due to the slowing demand of NAND Flash related applications, DRAMeXchange continued to revise 2009 NAND Flash bit grown downward from 108.2% in September, 2008, and slightly down to 95.3% in October, again to 93% in November. Along with the upstream vendor capacity cut in December, the total bit growth is estimated to decline to 81%. The NAND Flash bit growth numbers used to be 175% in 2006, 151% in 2007, and average 121% in 2008. The 2009 forecast number is comparatively much lower than the past growth rate reflects that the demand of the consumer electronics has dropped obviously.

From the demand of all major NAND Flash related applications, the shipment volume shows it’s in the trend of declining. Taking the mobile phone as an example, the 2009 forecast shipment is about 1.16 billion units which is 5.4% lower than in 2008. According to the official announcement of Nokia, the total shipment of mobile phone declined 5% in 2008. Besides, both Samsung and LG have revised their 2008 mobile phone shipment forecast, down at 8% and 12% respectively.

About digital still camera, shipment forecast of 2009 is 144 Million units. While comparing to the high growth in the past few years, the annual shipment growth in 2009 obviously declines. The annual growth rate in 2007 was 21.3%, and slightly down to 18.6% in 2008. About the 2009 shipment forecast, Canon’s forecast was revised down from 25 million units to 23.5 million units, and Sony from 26 million units to 24 million units.

The forecast of 2009 annual UFD shipment volume is 193 million units, 9% higher than in 2008. Comparing to 33% annual growth in 2007 and 26% in 2008, this growing trend will slow down. Since the desktop and NB computer shipments being revised once again, except a few products, which emphasizing on high capacity and high speed, keep certain degree of growth, the major huge growing momentum will come from the demand of gift market.

About the other applications, the market forecast of MP3/PMP shipment in 2009 is 120 million units due to the slowing demand. Comparing to the 14% high annual growth rate in 2007, the 2008 annual growth rate is estimated to be -2.4%, and -9.8% in 2009. Because now many new mobile phone models feature the music player function and drive the MP3/PMP demand down quarter by quarter. As far as SSD is concerned, the short term demand mainly comes from industrial market, and the outcome in the low cost PC market is actually lower than expected, which was due to the price and the reliability issues. Most NB PC still mainly adopt HDD as its major storage device. The penetration rate of SSD in the low cost PC market will be lower than 10% in 2009.

2H December NAND Flash Contract Price Comment

NAND Flash contract price roughly rose 0-20% in 2H Dec. Recently, major NAND Flash suppliers announced to slow down their wafer production, we expect the wafer production to reduce about 10% QoQ in 1Q09. Moreover, NAND Flash suppliers plan to adjust their product mix, lowering the unprofitable portion of the NAND Flash related production.  As the inventory level of some downstream makers is less than one month, although demand for NAND Flash remains weak, the expectation of NAND Flash supply reduction and healthier inventory levels have encouraged downstream clients to restock their NAND Flash products. This has led to some NAND Flash price to rebound in 2H Dec. Currently, electronics vendors remain conservative toward the sales expectation of Year-End and Chinese Lunar New Year holidays. However, in light of the reduction effect and healthier inventory level of downstream clients, it will help improve market sentiment, allowing NAND Flash contract price to become more stable.