DRAMeXchange: Qimonda bankruptcy effect, DDR2 1Gb spot price intraday up 25%

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. 
Two years of consecutive DRAM price drop, even fell below the vendor’s variable cost (material cost) in 4Q08, has made German, Korean, and Taiwanese government providing bail out plans with money funding or by other means to the DRAM vendors in order to secure the industry future development. Last December, Qimonda once saw the light of survival since that German government, its parent company Infineon, and Portuguese state bank agreed to fund €325 million. But on January 23rd, the information showed that its parent company Infineon didn’t execute the funding action, resulted in that German government decided to cancel capital support. Qimonda declared bankruptcy.

In mid October 2008, Qimonda and Taiwanese DRAM vendor Nanya terminated their technology cooperation. According to the contract, their joint venture fab Inotera will keep providing capacity to Qimonda until August 2009. Since Qimonda had stopped paying Inotera payment, Inotera responded with increasing capacity cut. Inotera’s new technology partner Micron Technology also increased its DRAM supply volume from Inotera.

Excluding the Inotera portion, the Qimoda’s 12 inch capacity, including German and U.S., is about 60 to 70 K wafers. If the Winbond OEM portion was added, it adds up to 80 to 90 K wafers. The 1Q09 WW 12 inch capacity average wafer in is now 920 K wafers (the peak average was 1.25 million wafers per month in 3Q08), which implies that there is high possibility we will see 10% production decrease of WW DRAM supply as long as other DRAM vendors keep their original capacity cut range. The DDR2 1Gb DRAM may have chance to go up to US$ 1.2 to US$ 1.5 price level, which is the cash cost of DRAM vendors, under the circumstances of DRAM capacity keeps reducing.

The next market focus will be the Taiwanese DRAM vendor’s bail out plan, provided by the government, and the development of future integration. First of all, Promos is facing the NT$　11 billion non collateral overseas convertible bonds due on Feb 14th. Although PSC possesses the long term technology and cost competitiveness, the short term financial pressure is increasing day by day. Inotera has to recognize the US$ 100 million receivables from Qimonda as bad debt and deal with the time pressure of switching to Micron’s process technology. Except the US$ 30 million bad debts of receivables from Qimonda, Winbond also has to deal with the future of those excess 20 K OEM capacity. After the DDR2 1Gb spot chip price rallied since 2H December 2008 from US$ 0.6 to now between US$ 1.1 and US$ 1.2, which was almost 100% upside, the contract price uptrend momentum still hasn’t started yet. DRAMeXchange thinks that after the tough 1H 2009, we’ll still see big turnings in the DRAM industry, such as vendors forced out of the market or other further integration. The DRAM industry must go through all these, and later step into a healthy recovering stage.

NAND Flash contract prices reach the makers’ cash cost; the upward momentum depends on the makers’ continual capacity cut

NAND Flash price started to rebound in December 2008 after Hynix’s  phasing out its 8 inch fab in September therefore lowered its NAND Flash capacity by 70% and Toshiba’s 30% capacity cut on its 12 inch fab. 8Gb and 16 Gb MLC contract price rose 70% and 50%, respectively, from the bottom at US$1.05 and US$1.65 which close to the makers’ material cost to US$1.82 and US$2.46 which close to the makers’cash cost. To remain above the current prices, NAND Flash makers have to keep the scale of capacity cut and even cut furhter as the demand turned down in 1Q09.

According to major consumer electronics makers’ 4Q08 earning release, most have suffered from sales shrinking. From the recently announced 4Q08 financial reports and product shipment numbers of the worldwide major consumer electronics vendors, almost every one was influenced by the global financial crisis. The 4Q08 shipment numbers of mobile phone maker Nokia and Sony Ericsson declined 4% and 5.8% respectively, Korean maker Samsung and LG maintained 2% and 11.7% growth, and Motorola hasn’t announced its 4Q shipment yet. But under the circumstances of the Apple iPhone shipment declined 37%, the consensus expects that Motorola 4Q shipment is also more on the declining side. On the whole, the 4Q08 mobile phone shipment decreased 1.6% QoQ and only reached 305 million units. The rarely seen situation of hot season 4Q shipment being weaker than 3Q had never happened in the past few years. Since most mobile phone vendors are pessimistic about the 2009 market demand, DRAMeXchange forecast that the mobile phone shipment will decline 10% YoY in 2009 with the scale of 1.094 billion units.

Similar situation also took place in the DSC market, the 4Q08 sales condition of the leading brands, such as Canon and Sony, was way lower than the previous expectation. According to the financial report released by Canon, its 4Q08 shipment declined 9% YoY compared to 4Q07. Canon also forecasts that its 2009 annual DSC shipment will be 7% less than in 2008. Due to the accounting method, Sony hasn’t declared its FY 2008 annual shipment yet (its fiscal year end is March 2009). But in the recently announced 4Q08 financial reports, Sony also again revised its FY 2008 annual shipment estimate from 24 million to 21.5 million units, declined 8.5% comparing to its actual FY 2007 shipment number. On the whole, 4Q08 DSC declined 6% QoQ. Just like the mobile phone, this is the first time in the recent years that the hot season shipment is less than the previous quarter. DRAMeXchange expects that the 2009 annual DSC shipment will decrease 1.6% comparing to 2008, with the shipment scale of 129 million units.

Apple has gained the most spot light among major consumer electronics makers. Apple iPod shipment in 4Q08 reached 22.72 M. Due to erosion from increasing smart phone with MP3 function, we expect MP3/PMP shipment to decrease 13.9% when compared with 2008. Total MP3/PMP shipment in 2009 is expected to reach 140.2 M. As far as the UFD market is concerned, since the PC market demand will decrease 5%, the 2009 UFD annual shipment will slightly grow only 4% to 5% with the shipment scale of 180 million units.

NAND Flash bit growth in 2009 is expected to be 72.1%. Though NAND Flash makers continue to adjust their supply, further price trend will depend on if upstream suppliers would continue to reduce production in order to meet market declining demand trend.