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【Market View】2009 WW DRAM CAPEX is expected to cut 40% to 50%; Rebound in 2H December driven by capacity cut and lowered inventory level; Demand for graphic memory in 2009 will decease


Published Jan.06 2009,17:04 PM (GMT+8)

Spot price remains in a steady uptrend. 2009 WW DRAM CAPEX is expected to cut 40% to 50%

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. On the capacity cut side, after PSC announced its capacity cut in September, Elpida, Promos, Nanya, and Inotera all had followed, and the total WW DRAM capacity cut was about 20%. Since the Taiwanese vendors were the major spot market suppliers and their 29% capacity cut were the highest among all vendors, hence the spot market supply decreased 36%, which was more stunning than the 19% supply decrease of the contract market .The double influence of back from the holidays of the U.S. and the European markets and the Chinese New Year buying will be the positive factors of the coming spot market.

In the contract market, the DRAM vendors hope the steadiness of the spot price can help stopping the contract price from its continuous downtrend. But with the PC slow season 1Q and the influence of global financial crisis, most PC OEMs had already revised their shipment target downward. Even the annual growth rate of NB may fall from 20% in 2008 to negative growth in 2009, which brings more uncertainties to the 1H January contract price. By the upside momentum of the spot price, many DRAM vendors intend to raise the 1H January contract price from US$ 7.5 to US$ 8, a range of 6-7% and are actively negotiating with PC OEMs.

With the coming of year 2009, the DRAM vendors will announce their CAPEX one after another in 1Q. Although the 4Q08 financial reports have not been published yet, the WW DRAM industry CAPEX is sure to be cut and expected to be about 40% to 50%, since the WW DRAM industry lost eight billion USD from 1Q to 3Q in the year 2008. About the Taiwanese vendors, PSC and Rexchip will delay their 50 nm process schedule and only do 65 nm process migration, not only to maintain their competitiveness but also to sharply decrease their CAPEX. Although Nanya and Inotera will switch to Micron’s stack technology and won’t be able to cut their CAPEX sharply, they may adopt the technology migrations with more steps such as taking 68 nm first and later deciding the 50 nm process upon the market situation. As the international DRAM vendors are taking into account, except the DDR3 will migrate to 50 nm process, Elpida leave its DDR2 with the original 65 nm and 70 nm processes. Samsung also plans to cut CAPEX and definitely will influence its migration from 68 nm to 56 nm process and its plan of the DDR3 market share elevation.

  

The rebound in 2H December after the deep drop of the mainstream chip price was driven by NAND Flash vendors capacity cut and lowered inventory level

The spot prices of the mainstream NAND Flash chips MLC 8 Gb and 16 Gb raised 38.5% and 23.6% respectively in 2H December.
According to our observation, this rebound after deep drop was due to:

a. The Japanese vendor Toshiba officially announced it will start annual maintenance in January 2009 and its 30% capacity cut plan in December 16th.

b. Under the effect that vendors continued to retire their 8 inch fab capacity, the NAND Flash upstream suppliers have kept decreasing their chip supply. The vendors also strategically decreased their low profit product output portions.

c. The inventory level of most downstream vendors was commonly down to normal, about two to three weeks.

On December 16th 2008, the number two NAND Flash market share leader Toshiba announced that it will stop its production up to thirteen days in its two 12-inch fabs and 4 days in its two 8-inch fabs due to annual maintenance, and will continuously adjust its production plan according to the market demand status. Toshiba expects that the annual maintenance will decrease 30% of its output after January 2009. Except the December Toshiba announcement, the capacity cut effect, caused by the other upstream NAND Flash vendor who stopped its 8-inch fab production earlier, started to show in December. Meanwhile, the chip inventory level of most downstream NAND Flash clients has been lowered to the normal status, which is two to three weeks. Because of Toshiba’s capacity cut and the chip supply of other vendors also keep decreasing, the downstream NAND Flash makers expect the 1Q09 NAND Flash chip supply will decrease sharply. Under the circumstances of supply decreasing in 1Q09, some market participants have started to accumulate NAND Flash chip inventory adequately. The deeply plunged 8 Gb and 16 Gb MLC spot chip price have started rebounding from December 17th, and reached 38.5% and 23.6% rebound range within two weeks, which ended on December 31st.

Now the time line has stepped into January 2009, whether the NAND Flash price can continue the price uptrend from December or not still depend on the demand and supply situation. From the demand side, since 1Q is the traditional slow season and under the influence of global financial crisis, we expect that NAND Flash major application shipments such as mobile phone, DSC, UFD, and MP3/PMP will decrease 10% to 25% QoQ in 1Q09. From the supply side, since that most vendors will decrease their wafer output, the wafer output is expected to decrease 10% QoQ in 1Q09. DRAMeXchange expects the sufficiency ratio of NAND Flash in 1Q09 to be 6.8%. Therefore, if the future market demand revives, the NAND Flash market price will remain stable in January, and some of the products may have chance to continue rebounding.

The increasing DRAM density of DT graphic cards does not help memory consumption

The low price trend and the performance improvement of integrated north bridge have driven the adoption rate of integrated graphic processor on desktop computer systems to 80% of its total shipment. But the discrete graphic card still accounts for 45% of the total desktop shipment scale in the recent two year, shows that consumers still demand for graphic card upgrade in multimedia and entertainment applications.

In 2H08, influenced by the global recession, the PC OEMs revised their shipment target downward again and again, which brought down the shipment of the discrete desktop graphic card and made the shipment target failed to be achieved. In 2008, the market scale was first expected as 80 million and now only reached 70 to 72 million, with a fulfill rate of 90%, and 8% decrease comparing to 2007. Along with the penetration of NB in the consumer market decreases the demand for the desktop, the discrete graphic card demand will also decline in 2009. The uncertainty of economy recovery will also bring down the consumer expenditure, the adoption rate of discrete graphic card on desktop will be down to 35% to 40%, and the market scale is expected to be 50 to 55 million, with a drop range of 20% to 30%.

About the memory density of the desktop graphic card, the mainstream memory density of the newly launched product lines of the two major GPU vendors Nvidia and AMD in 2H08 was 512 MB (Figure-5), which is the same as their pervious high end product lines such as GF 8000 series, HD 3000 series. Through product line replacement, the memory density of the desktop graphic card gradually moved from 256 MB to 512 MB, the 512 MB will become the mainstream density in 2009. Although the memory density of the desktop graphic card will still enjoy double-digit growth in 2009, the market scale of graphic card will decrease sharply. Therefore the demand for graphic memory in 2009 will remain unchanged or slightly decrease.