DRAM industry highlights significance of elasticity among Taiwan A&T houses;NAND Flash demand further suppressed by anticipation of recovery
Published Aug.12, 2008
DRAM industry highlights significance of elasticity among Taiwan A&T houses
While DRAM industry posted a record YoY bit growth in FY07, corresponding A&T (assembling and testing) houses were subjected to stiff challenges as a good elasticity on both pricing and production is required.
DRAM supply bit growth pegged at 94% in FY07, resulting in a 86% and 70% plunge in respective 512Mb and 1Gb DDR2 price on a YoY basis. Amid the sharp price erosion, prices had once edged to DRAM makers' variable costs. Despite the A&T houses saw a surge in orders alongside with growing capacity at clients, the sharp ASP erosion left them no alternative but to undergo the trough on the same frontline with clients by either cutting quotes or shortening testing time.
Some Taiwan-based A&T players were also prompted to forged partnership with local DRAM suppliers to secure stable orders and drive a maximized synergy. Of which, PTI has found its utilization rate kept running high, thanks to orders from Elpida and Kingston. Bookings at PowerASE were also strong amid a consistent migration to 65nm at Rexchip. FATC has also seen growing orders amid a noticeable yield ramp up at Inotera and rising orders from Nanya. For those A&T houses which are in lack of any established clients, they are expose to an uncertain sales outlook, as well as aggravating ASP pressure. (Fig 1).
Diversification – ultimate solution to counter cyclical rise and fall
A review of A&T's capex distribution pattern shows that most of them spent about 60% of their capex on testing equipment procurement and the remainder on packaging and materials. There is no upgrade concern for the packaging sector not only because upgrade cost from this segment is low, but also because packaging equipment for DDR2 and DDR3 could be shared.
Whereas for the testing sector, given that more players have trimmed their testing time (testing time for 1Gb DDR2 eTT has trimmed to 200-300s, which is equivalent to 512Mb DDR2 eTT’s testing time), some A&T houses are seeing some of their capacity being left idle accordingly. In order to fully utilize their equipment, they are prompted to look for new partner or product.
Logic IC and MCP are the segments that most A&T houses strive to take a bite. For instance, PTI is aggressively soliciting MCP orders from Elpida whereas SPIL is also looking for logic IC customers. ChipMOS, on the other hand, has already marked its presence to perform testing for CMOS-process made products. While A&T houses are trying to diversify their product portfolio, they also are striving to trim their sales exposure to DRAM.
As DDR3 is gaining its position, A&T houses are also moving their corresponding testing to volume stage, despite the fact that a meaningful transition will only take place one year after. Most A&T houses have grown their awareness about rising DDR3 testing demand. DDR3 delivers a core frequency of 800Mhz to 1600Mhz based on JEDEC's revealed specifications. But the present mainstream tester, Advantest T5593, only supports a frequency rate of 1066Mhz, implying that the present equipment could hardly fulfill future demand.
Currently only Verigy's V93000 HSM and Advantest's T5503 (Figure 3) could support a DDR3 core frequency rate of 3.6Ghz and 3.2Ghz, respectively. For those A&T houses, who have not yet procured these testers, they will need to assign additional budget for new tester procurement. However, given that a budget of US$5-7mn is required for new tester procurement, the considerable cost required thus slow down transition pace.
NAND Flash demand further suppressed by anticipation of recovery
A downhill trend is seen in NAND Flash contract price market in 1HAug, with prices dropped by an approximate of 5-15% sequentially. The weakening price trend is primarily because of a consistent sluggish demand. A bounce in contract price is likely in late 3Q when demand-supply status improves.
Demand for NAND Flash maintains low because: 1, Most downstream players are still adopting a wait-and-see attitude for a possible demand recovery from the white-box applications market after the Olympics and; 2, procurement is put on hold under an anticipation that demand from both mature and emerging regions may recover after summer holidays.
Current demand visibility for 4Q is still low, therefore, most downstream players are being conservative over bookings, with some may even postpone their procurement. Downstream NAND Flash suppliers are still housing a high inventory level after some upstream vendors adopted a flexible pricing during quarter-end in late 2Q. Therefore, it is not surprising to see them to focus on digesting present inventory, further highlighting a dismal demand trend. The present supply glut, to a certain extent, has disturbed the supply-demand mechanism somehow.
As of 1H Aug, prices of 16Gb MLC NAND Flash has dropped over one thirds (~36%) to US$3.24, down from 1H Jul’s US$4.02 and 1H Jun's US$5.06.
A warming-up demand is only likely during late 3Q, when the traditional seasonality for pre-stock procurement is expected to spur sales. Consider that Hynix has already made its second announcement about output trim (from 90-100% to 50-60%), an expected supply drop should encourage price to rise. Contract price is likely to reverse in late 3Q when demand and supply status gradually improves.
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