DRAM market-share games shifting from a knockout to a marathon; 4xnm process and multi-bit/cell as fundamental criteria to judge NAND Flash production competitiveness
Published Apr.1, 2008
DRAMeXchange warns DRAM market-share games shifting from a knockout to a marathon without a winner if no rational supply is seen
Major DRAM suppliers profited from their aggressive expansion in 2005 and this good fortune continued as the price of DRAM kept on going up in 2006. However, this boom did not come without consequences. This rapid growth in capacity, in addition to an over-optimistic projection on Microsoft Vista's demand for DRAM, has caused numerous industry suppliers much suffering since 2007. As those first-tier suppliers, who are finding it difficult to squeeze second-tier suppliers out, they will see intensified cost pressure. DRAMeXchange analyst, points out that some DRAM suppliers are still considering the present DRAM depression as a best opportunity to expand their market share. The DRAM market-share game is now shifting from a knockout to a marathon without a winner, and the whole business loses, according to DRAMeXchange.
Driven by the increasing demand in 2006, the upping of DRAM pricing motivated major suppliers to budget heavily capex for expansion. Within less than a year, the sharper-than-expected DRAM price fell rapidly and eroded profit of many industry suppliers. For those who lagged behind in terms of process node, a weak cost structure has led to critical loss.
Pressures from capex and operation, as reflected in shrinking cash in hands (Cash & Equivalents), prompted some DRAM suppliers to sell marketable securities for cash, or re-rent their 8-inch fabs after sales. As in 4Q07, those DRAM suppliers, which originally had relatively good cost structure, also recorded loss. Given that the cash in hand at these companies is rapidly declining, even those suppliers, who originally were supposed to grab more market share, now feel the pressure and a need to trim their capex in 2008 (instead of aiming at profitability), according to data from DRAMeXchange.
Despite DRAM suppliers are adjusting their strategy to preserve profitability, their gross margins are still being seriously eroded and some DRAM suppliers even found ASP edging to variable cost level. While industry players generally interpret a capacity scale back as putting white flag in this DRAM race, none of them has made such announcement.
DRAMeXchange analyst, points out that some DRAM suppliers are still considering the present DRAM dilemma as a best opportunity to expand their market share. Thus, they still plan for consistent expansion in order to strengthen its production economy of scale and expel those second-tier suppliers simultaneously. Nevertheless, their plan is not going as well as they have expected, because they either postpone their new fab construction, maintenance, trim headcount cost or announce bankruptcy to prolong their life in this industry.
If top-tier suppliers' " perfect game theory " encounters barriers, the nature of competition will shift from a knockout of second-tier suppliers to a marathon. As those first-tier suppliers who are finding it difficult to edge second-tier suppliers, they will see intensified cost pressure. DRAMeXchange believes a better pricing environment will only be possible if these suppliers slow down further expansion and adjust capacity, or everyone loses.
4xnm process and multi-bit/cell as fundamental criteria to judge NAND Flash production competitiveness
Apple started adopting NAND Flash as the storage media for its iPod lineup since 2005. In 1Q06 and 1Q07, a glut in the NAND Flash industry was observed. This scenario has repeated in 1Q08, due to a noticeable sequential drop in shipments in the four key NAND Flash applications (handset, digital camera, USB Flash drive; UFD and MP3/PMP)for this quarter, as well as the consistent expanding of 12-inch wafer capacity.
Although chipmakers can adopt some measures to adjust the inventory on hand in slowing the price drop magnitude and maintain their profitability, the core competitiveness very much depends on the pace of their advance production to 4xnm and 3xnm, and the development of 3bit/4bit per cell FG (Floating gate) or CT (Charge Trap) Data Flash. Recalling production roadmaps of leading players on the tape-out schedule for 4xnm and below process, Toshiba and SanDisk are taking the lead.
According to news release from Toshiba and SanDisk, the die area of a 16Gb MLC NAND Flash is only 120 mm2, representing a 30% decrease in comparison to a 16Gb MLC that is fabricated under 56nm. The shrink in die area indicates that NAND Flash makers will find their per unit cost minimize as more chips can be produced on the same wafer after process shrink. This also translates to a stronger profitability in return.
Migration to 3bit/4bit per cell means more bits of data can be stored in the same cell. Although the migration will sacrifice some performance, per unit cost decrease will also bring a lower production cost, as evidenced in the lower cost for producing 2bit per cell MLC NAND Flash than SLC component. We foresee NAND Flash makers to introduce their respective FG or CT-type NAND Flash on 4xnm and 3xnm over the coming quarters, as well as the introduction of 3bit/4bit per cell products.
2H March NAND Flash contract price review
The NAND flash contract price of 2H March, 2008, falls at the range between 0-15% due to the low season, account-close factor and over supply in the market. The price of SLC products has declined greater than MLC products due to the time lag after MLC price dropped for the past few months. With comparatively less supply in 2Q08 and increasing demand, the price is very likely to stop falling and begin to stabilize.
NAND Flash spot price recap, Mar 24-31
In the SLC segment, 1Gb dropped by 1.7% to US$1.78; 2Gb dropped by 3% to US$2.60; 4Gb dropped by 9.1% to US$3.69; 8Gb dropped by 7.5% to US$7.31 and 16Gb dropped by 9.8% to US$16.69. In the MLC segment, 4Gb stayed flat at US$1.90; 8Gb dropped by 2.3% to US$2.52; 16Gb dropped by 2.8% to US$4.91 and 32Gb dropped by 2.6% to US$10.93.
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