No Change in Memory Contract Price for May
The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. -- Ed.
Memory contract prices for May showed little m-m change. Meanwhile, we expect 2Q20 DRAM contract price to climb 11% q-q. In 3Q20, memory price growth is likely to slow relative to that seen in 1H20, affected by increased production and slowing data center demand.
No change in memory contract price for May
DRAMeXchange recently announced memory contract prices for May. The PC DRAM 8GB DDR4 contract price came to US$28.5 (+1% m-m), the server DRAM 32GB DDR4 price stood at US$143.2 (flat m-m), and the NAND MLC 64Gb price reached US$3.2 (flat m-m). As memory contracts are mostly quarterly contracts, price fluctuations in May were limited. Currently, memory makers are increasing DRAM supply. We believe that PC OEMs hold 8~10 weeks’ worth of PC DRAM inventory, up from 6~8 weeks in April. In 3Q20, contract price growth is likely to slow due to increased inventory and output. We expect PC DRAM prices to remain flat q-q.
Samsung Electronics (SEC) plans to expand DRAM capacity at its Pyeongtaek lines #1 and #2 by 30K wpm. The firm will also reduce its 1xnm production portion to less than 40%, while increasing its 1ynm and 1znm production portions. By end-2020, the 1znm portion should top 10% on a wafer input basis. SK Hynix is expanding its Wuxi C2F capacity by 30K wpm. We expect the company’s portion of 1ynm production to exceed 30% by yearend. Meanwhile, Micron’s sluggish 1znm yield is projected to normalize in 3Q20, with subsidiary Micron Memory Taiwan set to start transitioning to 1znm in 2H20.
With little capacity expansion on the horizon, NAND supply-demand conditions should fare better than DRAM conditions. We expect NAND contract prices to remain flat q-q in 3Q20. Supply growth is likely to fall short of market expectations. Industry inventory levels are estimated at only two weeks, and SEC and SK Hynix have been reducing 2D NAND capacity. In order to secure profitability, SK Hynix does not plan to add any new NAND capacity in 2020. And, to meet the current SSD demand boom, Western Digital and Kioxia are focusing on the 96-layer process (higher yield) rather than the 112-layer process, leaving production levels at their new joint K1 fab relatively unchanged.
Rather than expanding capacity in 1H20, Micron is focusing on transitioning to its new gate process. And, Intel has no NAND capacity expansions planned for 2020. Rather, the firm plans to switch to the 96-layer process and increase the portion of QLC products. Intel’s sampling of 144-layer products is set for 2H20.
Server demand slowdown and mobile demand growth expected in 2H20
In 1H20, data center investment has expanded on increased stay-at-home demand due to Covid-19. As a result, server DRAM prices surged 20% q-q in 2Q20. In 2H20, data center investment should decrease in part due to adjustments following the surge in investment seen in 1H20. Of note, the CEOs of Google and Intel have both commented on the likelihood of reduced data center investment in 2H20.
Mobile set demand (includes smartphones), which proved extremely sluggish in 1H20, should improve in 2H20. Now partially free from the influence of Covid-19, the Chinese government looks to be in a hurry to build 5G infrastructure to boost the domestic economy. To date, Huawei has completed the deployment of 200,000 5G base stations in China, and the firm plans to build 600,000 additional base stations in 2H20.
Also positive, sales of the iPhone 12 (to start selling from September) are now expected to exceed previous estimates. We estimate 2020 iPhone 12 sales volume at 68mn units (+12% y-y vs 2019 iPhone 11 sales). In detail, iPhone 12 sales are predicted to be favorable thanks to competitive pricing and design changes compared to previous models. Also positive, 120Hz displays and LiDAR scanners are to be adopted. We note that iPhone AP maker TSMC recently received an additional AP order from Apple. It appears that mobile demand growth could offset slowing data center demand in 2H20.