Formation of new camps threatening Samsung's leadership; Apple and SanDisk 1Q earnings hint NAND Flash market outlook
Published Apr.29, 2008
DRAM Q1 revenue declined by 5.8%, ASP contract price declined by 19%, spot price decreased by 11%
According to DRAMeXchange’s analysis, DRAM spot & contract price fell roughly 11% and 19% respectively. Impacted by the continued low DRAM prices, branded DRAM makers’ revenues fell roughly 5.8% compared to Q407. Except Elpida and Powerchip whose revenue increased in Q108 thanks to Rexchip’s strong production ramp-up, all other DRAM makers experienced a decline in revenues. As a result, Elpida and Powerchip both saw a slight increase in market share in Q108.
As to DRAM industry market share, categorized by individual countries, Japan increased by 0.9% due to Elpida’s revenue increase in Q108; Taiwan increased by 1.1% to 14.7% primarily from Powerchip’s gain in market share; Korea still sustained in the same market shares. However, in its most recent investor conference, Samsung has announced it will increase its Bit Growth Rate from 70% to 100%; we see this announcement as a sign of Samsung’s will to continue its reign of DRAM market leader.
Formation of new camps threatening Samsung's leadership
Qimonda and Elpida shocked the DRAM industry on 4/24 by announcing an MOU between the them to co-develop their next generation process technology. In the aftermath of Micron and Nanya’s announcement of cooperation, the announcement between Qimonda and Elpida again re-shuffles the competitive landscape in DRAM industry. Qimonda and Elpida’s cooperation is also a sign of will from Qimonda to develop stacked process.
From the latest financial reports, according to DRAMeXchange’s analysis, with the cooperation between Elpida and Qimonda, market share for Elpida camp will, for the first time, take the lead from Samsung and become the market share leader in DRAM industry. Taking the lead in market share is an important step in becoming the true leader in DRAM industry - the announced goal of Yukio Sakamoto, CEO of Elpida. However, transitioning from trenched to stacked process will require minimum of 6 month – plenty of time for Samsung to catch up in market share if Samsung executes its market strategy properly. Faced with this fierce competition for market share, the expected industry recovery in 2H08 becomes more uncertain now.
The cooperation between Elpida and Qimonda also made Inotera’s future more uncertain. Inotera currently employs Qimonda’s trench process for its 120k WPM, high capacity production line. However, with the uncertainty for 58nm and buried wordline process development, Nanya has sought out a different partner – Micron – for cooperation. It was commonly expected that Nanya will acquire all Qimonda’s Inotera shares in order to fully cooperate with Micron in developing stacked process. In light of this new announcement from Qimonda and Elpida, we will be paying special attention to observe whether Inotera will be producing DRAM for both Qimonda+Elpida and Nanya+Micron camps based on stacked process. We will also keep an eye on the schedule for such process transition if indeed the aforementioned event occurs.
In terms of current technologies, Samsung, Micron, and Elpida are all very confident in their future process development. However, because of heavy losses due to the steep 512Mb DRAM price decline (as much as 85%) in the past year and the high cost of constructing a new 12 inch facility (in the amount of $4B or 5B USD), capital raising from financial market becomes the most important key to the winning of future competition in the DRAM market.
DRAM spot price post mild growth progressively
DRAM spot price continued to surge last week while the worst circumstances had gone and market sentiment became more optimistic with good news. The trading volume hadn’t expanded because the sell side tended to hold their position and the chip supply in the spot market was limited as observed. Since last November, the spot price has been forming a strong bottom. Unless there is a certain unexpected negative event takes place, the market is expecting the DRAM price to go up in 2H08. Due to the potential price premium in 2H08 compared to now, either the price is low enough or there is positive news, the spot price rallies for awhile.
“The May DRAM contract price will surge 10-20% and firmly 10% up in 1HMay,” said by Nanya Technology spokesman in the analyst meeting took place in April 23rd, acted as another catalyst in the spot market last week. There were lots of consolidation rumors and news about DRAM vendors which were also positive to the DRAM market. But a Korean DRAM vendor announced that it will raise its DRAM annual bit growth rate to 100% this year in its analyst meeting. According to DRAMeXchange’s analysis, if its yield rate can be elevated fast enough 85-90% annual growth rate could be possible and output will increase majorly in Q3 and Q4, but the short term impact should be limited.
DRAM makers are still suffering lost even with the current ASP US$2.02 of DDR2 1Gb 128x8 eTT chip, and trying to get out of the mud. Under the circumstances of no additional capacity and chip output occasionally decreased by production strategy modifying or technology migrating issues, we expect that the spot price trend will be steady up.
Apple and SanDisk 1Q earnings hint NAND Flash market outlook
Both upstream and downstream players from the NAND Flash industry are going to release their 1Q08 earnings in recent weeks. Of which, leading MP3/PMP leader Apple and memory card/USB drive leader SanDisk, have released their earnings on April 23 and April 17, respectively. Since the combined market share of MP3/PMP, memory card and USB drive accounts for 80-90% of NAND Flash demand, and that Apple and SanDisk hold dominant roles in the respective segments, their performances have a judging power in reviewing the market trend in 1Q and projecting the outlook for 2Q.
Despite Apple recording its overall sales growing by 43% YoY in 1Q, the majority of its sales were contributed by Mac, especially MacBook, where the sales volume and sales grew by 61% and 58% YoY respectively. Sales of the star products, iPod and iPhone, however, only met previous expectations. iPod sales grew by a mere 1% YoY from 10.549 million to 10.644 million. Due to relatively strong sales of the iPod Touch, sales of the iPod related products grew by 8% YoY. Sales volume of iPhone dropped from 2.32mn in 4Q to 1.70mn in 1Q on seasonality weakness. By tracing iPod shipments record from FY06, a weakening growth is observed. We therefore project that iPod shipments to be flat QoQ in 2Q.
Royalty payment from memory card totaled at US$126mn.
SanDisk guides that its 2Q sales will be in the range of US$875-950mn with royalty income to be in the range of US$115-125mn. Therefore, sales from NAND Flash-related applications should be in the range of US$760-825mn, translating to a 5-14% QoQ growth.
Based on the iPod shipments and SanDisk sales forecasts in 2Q, demand of MP3/PMP, memory card and USB drive is expected to have a mild sequential QoQ growth. In light of the price plummet of NAND Flash ASP during 4Q07-1Q08, average memory density per box is expected to grow in 2Q accordingly, resulting in an improving demand-supply status. The entire status is expected to improve further when pre-stock demand emerges prior to the back-to-school season in 3Q.
2H April Contract price comment.
Most spec. of NAND Flash average contract price in 2H April, 2008, stayed flat or slightly increased. Items of some specific density continue 1H April price trend and show rebounding from the bottom of recorded price line due to Hynix’s earlier announcement of reduction. With much more optimistic demand in 2H08, traditional peak season for NAND Flash related product, the oversupply in 2Q08 is expected to ease and meet its balance in 3Q08. NAND Flash contract price thus is expected to stop falling and stabilize in 2Q08 due to the market sentiment improved in the off season. The NAND Flash price is likely to gradually rebound as the 2H08 seasonal demand increases.
NAND Flash price recap, Apr 21-28
In the SLC segment, price of 1Gb dropped by 3.2% to US$1.84; 2Gb flat at US$2.71; 4Gb up 1.9% to US$3.83; 8Gb up 0.3% to US$7.63 and 16Gb up 1.8% to US$17.07. In the MLC segment, price of 4Gb dropped by 1% to US$2.02; 8Gb dropped by 1.5% to US$3.36; 16Gb dropped by 2.5% to US$5.39; 32Gb up 1.5% to US$11.60 and 64Gb dropped by 0.7% to US$23.94.
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