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What’s The Outlook for Memory?

DRAM and NAND fell off the cliff in ’18 with no relief in sight for ’19.

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What a difference a year makes in the memory business.

At this time last year, the industry was in the midst of a boom cycle for both NAND and DRAM. More specifically, there was huge demand for 3D NAND.

Then, starting in the first quarter of 2018, the NAND market began to decline and it continues to fall. And now, the DRAM market is also falling off the cliff. So, it’s time to take a quick look at the memory market and where it’s heading as we go into 2019.

DRAM trends
Until recently, the DRAM market was predictable. DRAM vendors built relatively little fab capacity amid lackluster demand in the market. But in 2017, the DRAM market surged, thanks to demand in the mobile, server and other segments. Yet, fab capacity was not there to support the surge, which caused tight supply and soaring DRAM prices.

So the sleepy DRAM market became the center of attention. In 2017, the growth in the semiconductor market was fueled in part by DRAM.
The momentum continued in 2018, as DRAM revenue reached a record high in the second quarter of this year, according to DRAMeXchange, a division of TrendForce.

The bad news: DRAM prices hit the peak in the second quarter and fell into a slight oversupply mode. Then, by the fourth quarter, the average contract price for a 4GB PC DRAM module is hovering around $31.00, down 10.14% from $34.50 in the third quarter, according to the firm.

“DRAM prices have just started to fall, right on schedule,” said Jim Handy, an analyst at Objective Analysis. “The oversupply has commenced. The leading three DRAM manufacturers’ most recent earnings calls explained that prices leveled off in the third quarter, and spot prices are now 16% below this cycle’s peak.”

There are other indicators, if not mixed signals, as well. “Since the beginning of 2018, Semico’s forecast scenario incorporated peak prices in the third quarter and price declines in Q4 and into 2019,” said Jim Feldhan, president of Semico Research.

The most recent data from SIA/WSTS indicated that prices fell 5.3% in September of 2018. “That is only the second time DRAM prices have dropped in 2018. DRAM prices fell 1.3% in May 2018,” Feldhan said.

Still, it’s not all doom-and-gloom in the market. “Although one month is not a trend, we are hearing that prices have flattened and are getting softer. I would not call the current market an oversupply situation. Samsung did recently announce that they were going to further expand DRAM capacity. DRAM ASPs are up 200% since 2016,” he added.

NAND trends
For some time, NAND flash vendors have been making the transition from today’s planar NAND to 3D NAND. Last year, the NAND market was beset by product shortages, supply chain issues and a difficult technology transition.

Then, in the first quarter of 2018, the NAND flash market entered into an oversupply mode. Oversupply has extended throughout 2018, while product prices have plummeted. Contract prices for triple-level-cell (TLC) NAND flash wafers dropped by 13%-17% in October, the largest price fall for a single month since November of 2017, according to TrendForce.

The NAND market remains a mixed bag. In 2018, NAND prices have declined in the following months—February (-5.3%); May (-5.0%) and July (– 8.1%), according to Semico. However, August and September prices rose 13.3% and 14.1%, respectively, according to the firm.

“Semico had the same scenario for NAND as we had for DRAM, that is, price declines in the fourth quarter of this year,” Semico’s Feldhan said.

Others see a dreaded downturn in the arena. “NAND began its oversupply and subsequent price fall earlier than DRAM, in the beginning of 2018,” Handy said. “Spot prices are a whopping 79% lower than they were at their peak at the end of last year, and manufacturers have reported that third quarter contract prices were 30% below their prices in the fourth quarter of last year.”

Asked if the price erosion is worse than expected, Handy said: “No. When memories go into an oversupply, they have historically fallen to cost in about two quarters. We will have to see how long it takes with DRAM, but the NAND flash collapse is taking about twice that long.”

Prospects for 2019
In 2019, the situation looks gloomy for DRAM and NAND. It’s good for consumers, though, as memory will go at bargain prices.

For NAND, “we do expect prices to flatten and decline in 2019, but haven’t seen a price collapse yet,” Feldhan said. “Semico believes that memory will see significant price declines in 2019, especially in the second half of 2019.”

Handy, meanwhile, said: “Our outlook for 2019 is the same as it has been for a few years–we anticipate a complete absence of gross profits for NAND flash and DRAM for the entire year. These chips will sell at cost.”



2 comments

Doug says:

Mark,
Do you think the quarterly reporting for public companies is causing the cycle?

A wafer takes 4-8 months to go from start to finished product. So the forecasting has to be months ahead of the demand. A hard problem.

But, if the CEO sees demand reduced, or oversupply starting, the peak of the cycle, and tries to slow down, they get hammered in the markets. When they announce slowing down wafer starts, the stock will plunge.

Much better to keep playing stock price chicken, saying things like “this time it is different”, and only take the stock hit when they have to. Quarterly reporting is causing the cycle.

Mark LaPedus says:

Hi Doug,
That’s one way to look at it. Quarterly reports play a role. But it’s really supply and demand. It’s cyclical too. But let’s not forget that DRAM makers didn’t add capacity this cycle. And 3D NAND creates a lot more bits. It’s very complicated. Anyone else have a better answer?

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