The DRAM Market Advisor - dedios.com · The DRAM Market Advisor May 2012 DE DIOS & ASSOCIATES ......

The DRAM Market Advisor May 2012

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Contents

Macro DRAM Demand-‐Supply Condi6ons............... 1

DRAM Demand Outlook:Strong Q312 Builds, Uncertain Q412 Sell-‐through .. 1Demand profile in Q212Demand profile in Q312Q412 demand will depend on sell-‐through

DRAM Supply Outlook:Slower 2Xnm Transi6on & Inventory Releases ...... 3Capacity u>liza>on and cash marginsCapital spending and limited process transi>ons2Xnm yield issues and slower new-‐process rampsElpida reorganiza>onSupply disrup>ons from alloca>ons and market-‐share changesOEM inventory burn and related decisionsRelease of supplier inventory

The PC-‐DRAM Market .....................…………….......... 6Q212: Flat demand and supplier share changesQ312: Strong PC unit builds & OEM inventory burnQ412: Declining PC builds & supplier inventoryProduct mix changes

The Server-‐DRAM Market ......................….............. 9Server DRAM demand trend & outlookServer DRAM supply trend & outlook

The Mobile-‐DRAM Market ......................…....…..... 10Mobile DRAM demand trend & outlookRobust smartphone builds in 2H 2012Memory content growthRisk of excessive system buildsMobile DRAM supply trend & outlook

Price Forecasts ........…………………..............…....…..... 13DDR3 PC-‐DIMM Price Forecast & HighlightsDDR3 RDIMM Price Forecast & HighlightsLPDDR2 & LPDDR1 Price Forecast & Highlights

Executive Summary

• We expect to see more balance between DRAM demand and production in 2H 2012. The chance of OEM inventory burn and some supplier inventory release at that time is high.

• Q212 demand is weak because of flattish, monthly PC builds and weak server sales. DRAM suppliers, however, continue to push prices up for more cash margins and profitability.

• A strong and concentrated demand growth of 23% Q/Q in Q312 will drive the balance. Builds of systems using mobile DRAMs - smartphones, tablets, etc. - will be up 41% Q/Q. Server sales will pick up with completion of Romley evaluations. PC builds will replenish low channel inventory with systems using Windows 8, Ivy Bridge, and Ultrabook designs.

• Q412 demand will depend on sell-throughs. PC unit builds will decrease sharply to avoid excess channel inventory. So far, smartphone builds are still optimistic and server sales are seasonally strong in this quarter.

• Transition to the 2Xnm will be limited because of yields and low capital spending, lowering bit growth and slowing cost reductions. Capacity utilization rates will continue to rise; all OEM suppliers will have positive cash margins in May.

• Consequently, we expect allocations across DRAM products to become more difficult. OEM inventory will likely be burned in Q312. Supplier inventory will flow more in Q412 to boost year-end financials. Almost all vendors will show reductions in PC-DRAM bit output in 2H 2012.

• We expect PC-DRAM prices to increase until larger suppliers - Samsung, Hynix - achieve operating profit margins by mid-Q312, after which price increases will slow because of weak Q412 demand. 8GB RDIMM prices will stay within the $60-$65 envelope. LPDDR2 prices will decline slowly in 2H 2012 because of strong demand and allocation difficulties.

Macro DRAM Demand-‐Supply Conditions

1. We expect DRAM production to have a closer balance with demand in 2H 2012 (Exhibit 1). The change relies

heavily on a pickup of Q312 demand. Exhibit 2 shows the wide difference between the quarter-to-quarter increase of demand and production. The Q312 demand growth will come from several sectors --- mobile-

DRAM, server-DRAM, and PC-DRAM. Overall DRAM inventory will decrease next quarter and motivate DRAM companies to raise prices.

2. The DRAM market, however, is no longer monolithic. The macro view of market conditions will not correctly define the direction of prices in each sub-market. Although there is still a relationship in the prices of different

sub-markets, that relationship has diminished because each sub-market now has its unique nature and set of dynamics. This report will describe each sub-market's environment and how prices will trend through 2012.

3. We believe that OEM and supplier inventory will flow into the market in 2H 2012, unlike in the first half. This report will identify the triggers that will unleash inventory.

Exhibit 1. Overall DRAM Demand & Production Trend Exhibit 2. Comparison of Demand & Production Q/Q Change

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DRAM Demand Outlook: Strong Q312 Builds, Uncertain Q412 Sell-‐through

4. Exhibit 3 presents our demand outlook for each sub-market in 2012. We raised our forecast of total DRAM demand to 29.8 billion Gbits, a 36% increase from 2011 to 2012. Exhibit 4 shows that the 23% demand

change in Q312 comes from all key sub-markets --- mobile DRAMs, server DRAMs, and PC DRAMs.

5. The Demand Profile in Q212. DRAM demand is estimated to increase by 10% from Q112 to Q212 due to a

9% rise of PC unit builds from its January bottom (coincident with the HDD supply recovery) and a 9% rise in builds of mobile devices such as smartphones and tablets. The quarter-to-quarter change of PC unit builds,

however, is misleading. The 3-month moving-average trend of PC-unit builds will flatten from March to June. The average monthly PC-unit build from April to June will be 4% lower than March. Due to weak consumer

DE DIOS & ASSOCIATESDRAM Market Advisor - May 2012! Page 1


demand, PC companies will hold back production until the Windows 8 release to manufacturing and Ivy Bridge availability improves. The constrained production is also affected by tight ODM capacity in China.

Exhibit 3. DRAM Demand Profile, 2011-‐2012 Exhibit 4. DRAM Demand Trend

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%DEM

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MOBILE!

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6. Server DRAM demand has weakened considerably in Q212 as most end users evaluate the new Romley

platform. Because of the weaker PC and Server DRAM demand, OEMs have shown more resistance to the strong efforts of DRAM suppliers to raise prices. In April, most major OEMs resisted by delaying price

negotiations to the last week of the month. We expect those delays to continue in May and June.

7. It is probable that DRAM demand will be boosted by OEM buy aheads in May and June in anticipation of

stronger Q312 demand growth.

8. The Demand Profile in Q312. We anticipate a demand growth of 23% from Q212 to Q312, driven by all key

markets: PC-DRAMs, server-DRAMs, and mobile DRAMs.

9. Our analysis shows that production of mobile devices, like smartphones and tablets, will be more than

seasonally strong. We expect it to increase by 39% from Q212 to Q312 compared to 28% in the same period last year. Market-share competition and new models will drive smartphone builds. Windows 8 will encourage

production of new tablet models.

10. After the Q212 delay, PC-unit builds will be more concentrated in Q312 and increase by 15% over Q212. The

PC industry will replenish low channel inventory with new products based on new Ivy Bridge processors, Windows 8, and Ultrabook designs. We also expect new Mac designs in 2H 2012. We expect server sales to

recover strongly by August with the completion of Romley evaluations.

11. The new server platform will boost memory content in the second half of the year but we expect weaker

growth in PC and smartphone memory content.



12. Q412 Demand Momentum will Depend on Sell-‐through. The demand pickup in Q312 is based mostly on system builds rather than end-use demand. Continuation of that demand depends heavily on the sell-through of PCs

and smartphones to consumers. OEMs are likely to sense the strength or weakness of end-user and sell-through demand before the end of Q312. If the sell-through demand falls below expectations, they will lower

their builds in Q412 to avoid an excess buildup of channel inventory and, thereby reduce DRAM demand growth.

13. Global economic conditions weigh against the probability of robust consumer demand. Europe has entered a recession and the US economy is decelerating. Emerging economies like China and India show slowing GDP

growth. Corporate demand for the new PCs will lag consumer demand. OEMs however cannot afford to guess wrong. They are likely to be aggressive in competing for channel space but just as aggressive in pulling back

to avoid excess inventory.

14. So far, smartphone build plans continue to increase in Q412 and risk an accumulation of excess channel

inventory. We expect PC unit builds to decrease by at least 4% in Q412, assuming PC companies achieve their expected 2012 PC-unit shipment growth of 5%. Unlike PCs and smartphones, server builds will rely on

corporate earnings and the activity of the installed base of mobile and internet users. We expect Server DRAM demand to be seasonally strong in the fourth quarter.

DRAM Supply Outlook: Slower 2Xnm Transition and Inventory Releases

15. DRAM production has changed and will change frequently because of multiple variables including: capacity utilization, 2Xnm yield improvements, capital spending, and the Elpida reorganization. We currently project a

2012 production of 32 billion gigabits, a 32% increase over 2011.

16. There are considerable differences in the production resources and financials of DRAM companies. We

therefore expect considerable differences in the production trend of each DRAM supplier. Exhibit 5 illustrates this by showing the difference in the Q/Q changes of the production of the four leading DRAM companies with

those of the industry and other producers. Capacity utilization and process-technology differences were the major themes in the first half of 2012. In the second half, we see low capital spending, limited new-process

transitions, and 2Xnm yields as the primary themes.

17. Capacity Utilization and Cash Margins. We expect a continuing increase of capacity utilization through 2012.

May will be a turning point when all DRAM producers will have positive cash margins from PC-DRAMs. From

hereon it will be uneconomical for a manufacturer to keep utilization low purposely. We foresee industry capacity utilization rising from 84% in Q112 to 94% (or more) in 2H 2012 (Exhibit 6). Utilization of Taiwan-

based companies will increase from 62% in Q112 to 84% (or more) in the second half of the year. Our forecast assumes that Elpida and Rexchip will return to near full utilization but uncertainty accompanies that

assumption because of Elpida's reorganization.

18. Capital Spending and Limited Process Transitions. We estimate DRAM capital spending of $4.8 billion in 2012,

about 40% below 2011. Investments in new immersion scanners are down 83% from 2011 to 2012. The low capital spending means that transitions to the 2Xnm and 3Xnm technologies will be limited. Those limits will

have a significant market effect because they will constrain bit growth, especially in 2H 2012, and slow down manufacturing-cost reductions. We expect 2Xnm production to be 20% (or less) of bit output by Q4 2012



(Exhibit 7). As a reference, the 3Xnm was 39% of industry bit output at the same stage of its life cycle. Exhibit 7 also shows a flattening of the 3Xnm, indicating limited transition to this node by Taiwan-based producers.

19. 2Xnm Yield Issues and the Trend towards Slower New-‐Process Ramps. Exhibit 7 illustrates a trend towards slowing production ramps and longer times-to-peak as the market moves from the 4Xnm to the 2Xnm. It will

be an inevitable trend that will reshape the future of the DRAM business. The limited transition to the 2Xnm in 2012 is, we believe, the result of difficulties in yields and control of quality. Some DRAM suppliers are opting

to limit the 2Xnm move and jump to the 2Ynm in the first half of 2013.

20. This has far reaching consequences. DRAM companies, with full utilization and completed 3Xnm migration,

need the 2Xnm transition to increase bit output in the second half of the year. With limited output growth, product-mix allocations will become more difficult and will reduce PC-DRAM availability.

21. Elpida Bankruptcy and Reorganization. The Elpida reorganization remains a large uncertainty hanging over the

DRAM market. The choice of Micron for exclusive negotiations lifts some of that uncertainty but many more remain. We see low probability of events that can lead to serious supply disruptions: Elpida's liquidation or

the takedown of the Rexchip fab. Uncertainty still revolves around the ability of Elpida and Rexchip to increase capacity utilization.

22. Supply Disruptions due to Product-‐mix Allocations and Market Share Changes. We expect significant product-

mix allocations in Q312 because of strong multi-sector demand. DRAM companies will continue to allocate more bits away from PC-DRAMs and to mobile, server, and other DRAM products. We believe that demand

will challenge some DRAM companies to significantly increase the mobile-DRAM and server-DRAM share of their production portfolio. We also expect PC-DRAM production of some DRAM companies to decrease in 2H

2012.

23. We also see market-share disruptions in the server-DRAM market. Samsung is likely to lose market share as

they allocate more resources to mobile DRAMs. This will challenge DRAM companies to raise their server-DRAM production and its share of their portfolios substantially in Q312.

24. OEMs will scramble to rebalance their supply of server-DRAMs and PC-DRAMs across their suppliers because of the allocation and market-share changes. The rebalancing will have an effect on DRAM prices in the second

half of the year.

25. The OEM inventory Burn in Q312 and Related Decision Options. We believe that some OEM inventory was used

this quarter but there may be efforts to buy ahead again before Q312. We therefore expect major OEM inventory burns in Q312 as supply tightens due to higher demand, product-mix allocation changes, and

market-share disruptions. OEMs with inventory will have an easier time rebalancing their supply flow than those without inventory.

26. We believe that OEMs will have two general options as they burn inventory. The first option is to use the inventory to lead overall market prices down and thereby have a cost advantage over their competitors. The

second option is to let market prices go where they go (even up) and use their inventory to keep their costs lower than competitors. In the first option, OEMs will burn inventory at a fast pace and in a shorter period. In

the second options, OEMs will burn inventory at a slower pace and a longer period.



27. The impact of OEM inventory on PC-DRAMs can be significant. We estimate that the first option will effectively reduce perceived demand and order rates by 8%, which is a large number and can cause a

perception of excess supply. We estimate that the second option can reduce perceived demand and order rates by 3%, which is not as large but allows OEMs with inventory to resist price increases.

28. We believe that some OEMs may prefer the second option because of continuity-of-supply risks. The probability of driving a significant price reduction is low. OEM inventory levels are not as high or as broad-

based as they were in Q211 when OEMs reacted to the earthquake and tsunami in Japan. They are also more concentrated on a few OEMs and DRAM-channel companies. Unlike Q310 and Q311, demand in Q312 looks

strong, making it more difficult for prices to fall as they did in the past two years. DRAM companies have been very strong-willed in their price negotiations.

29. The Release of Supplier Inventory. We expect supplier inventory to begin flowing into the market in Q312 and mostly in Q412, unlike the first half of the year. Supplier inventory flow into the market has been weak

because it has been concentrated on a few DRAM suppliers and partially held in wafer banks rather than finished goods. Some of the DRAM companies with high inventory are also those with negative cash margins

and poor balance sheets.

30. Financial conditions and supplier behavior will change in 2H 2012. DRAM companies will all have positive

cash margins in May and onward. Some DRAM companies will probably achieve positive operating margins by Q412. We believe DRAM companies will be more motivated to move supplier inventory in the face of

stronger demand and with the pressure to improve financial reports before the end of the year. Cash and profits will increase faster by shipping more bits rather than by increasing cash and profit margins. Profit and

cash margins will also enjoy the benefit of continuing cost reductions.

Exhibit 5. DRAM Production Trend Exhibit 6. DRAM Capacity Utilization Trend

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7%!Q/Q!

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Exhibit 7. DRAM Production by Process Technology

The PC-‐DRAM Market

31. Our projections show that PC-DRAM demand and production will be more balanced in 2H 2012 (Exhibit 8).

Our demand numbers assume a 2.4% PC-unit build growth (377 million units) and a 21% GB/PC growth (4.2 GB/PC average) in 2012. This results in a PC-DRAM demand of 13.6 billion Gbits, 22% higher than 2011. PC-

DRAM production is estimated to increase by only 17% to 15.4 billion Gbits in 2012. Most of the excess production occurred in the first half of the year.

32. We also assume an Ultrabook penetration of 7% of mobile-PC units (18-19 million units) in 2012 and 15% in Q412. We expect the average memory content of an Ultrabook to be close to the mainstream configuration of

4GB. In 2012 and the first half of 2013, the Ultrabook will be more of a PC-revenue driver than a PC-unit driver. The Ultrabook's unit growth is likely to slow that of notebook PCs.

33. Our PC unit build forecast allows a 5% PC-unit shipment growth with low channel inventory at year end. How strong sell-through demand and unit shipments will be remains uncertain. We believe that there is a greater

chance that PC unit shipments will increase by only 3.5-4.0% in 2012.

34. Q212: Flat demand, Supplier share Changes, and Positive Cash Margins. Demand in Q212 is being hampered by

a relatively flat month-to-month growth of PC unit builds. Exhibit 9 shows that the average monthly build from

April to June is 4% lower than March. PC OEMs will not be looking for much more bits in Q212 unless they buy ahead. The chart, however, shows a PC unit builds increasing from April to June.

35. We expect supplier shares to shift as some suppliers show little to negative growth in their PC-DRAM production while others show larger gains. Companies that will gain market share may wrongly interpret this

as an overall improvement of demand and use it to justify an increase of capacity utilization.

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36. We believe that all PC-DRAM suppliers to OEMs will see positive cash margins in May (Exhibit 10). This is a major development that, we believe, will eventually change the behavior of DRAM companies in 2H 2012. It

justifies higher capacity utilization and encourages the release of supplier inventory.

37. Q312: Strong PC Unit Builds and OEM Inventory Burn. We expect PC-DRAM demand to increase by 17% from

Q212 to Q312 as PC OEMs replenish channel inventory with a wide range of new products using Ivy Bridge processors, the Windows 8 operating system, and Ultrabook designs. We do not believe that Windows 8 will

be released to manufacturing until after July. PC-unit builds will be the major cause of the demand increase, rising by 15% in Q212. We expect slow memory-content growth, however, the result of efforts by DRAM

companies to allocate production away from PC-DRAMs. We expect a monthly MB/PC growth rate of about 0.7%, which is 66% less than the growth in Q311.

38. The 17% demand increase will surpass the 2% reduction of PC-DRAM production in Q312. We expect all suppliers to OEMs to reduce their PC-DRAM bit production in this quarter without adequate transitions to the

2Xnm and 3Xnm processes and the allocation of bits to the faster growing demand for mobile and server DRAMs. Continuity-of-supply is at risk in this quarter and there will be a tendency towards higher PC-DRAM

prices.

39. As a result, OEMs are likely to burn inventory at this time. The impact of supplier inventory on the PC-DRAM

market can be significant. PC-DRAM prices will therefore depend on the net effect of negative production growth, on one hand, and OEM inventory burns on the other. As mentioned earlier, the effective demand and

order rates of PC-DRAMs can drop by 8% or 3% depending on decisions on how quickly OEM inventory will be taken down.

40. Some PC-DRAM suppliers will be motivated to shoot for profitability in this quarter. We are likely to see a widening range of available prices across OEMs and across suppliers in this quarter.

41. Q412: Declining PC Builds, Release of Some Supplier Inventory. We are not confident that sell-through demand

will be strong because of weakness in the global economy. We therefore believe that PC unit builds will decrease by 4% from Q312 to Q412 even as PC unit shipments rise. This compares with a 2% reduction in

Q410 and a 9% drop in Q411 (with the HDD supply shortage). The PC build reduction can support an expectation of 5% PC-unit shipment growth from 2011 to 2012. The PC build reductions will start as early as

October (Exhibit 9). Consequently, PC-DRAM demand will be relatively flat from Q312 to Q412.

42. If sell through demand is weak and PC unit shipments increase by only 3.5-4.0% in 2012, then Q412 PC unit

builds can decrease by as much as 7% from Q312, instead of the projected 4%. This would then be coming close to the PC industry's experience last year.

43. Our analysis shows that PC-DRAM production will decrease by 5% for four out of six suppliers from Q312 to Q412. Overall DRAM production will be down by 2% from Q312 and demand and production will be in

close balance. We believe, however, that DRAM companies will be motivated to release a portion of their inventory before year end to boost their financial statements. Except for Elpida and Micron, DRAM suppliers

end their fiscal year in December 2012. It will be easier for DRAM companies to raise year-end cash and profits by shipping more bits rather than by widening their cash and profit margins.

44. Moving a week of inventory can increase supply flow by 7%, which can appear large especially with the effect of OEM inventory burns, and can lead to PC-DRAM price reductions.



45. Product Mix Changes. We see two major product transitions. First, the 4GB SODIMM will become the mainstream PC module. Second, we will see a transition to the DDR3L and increased demand for DRAM

components with the Ultrabook's emergence.

46. We no longer see a crossover to the 4Gb density with the limitations on 2Xnm and 3Xnm transitions. We

expect the available 4Gb supply to be sold first to the Ultrabook market in the DDR3L version. 4GB SODIMMs will still be predominantly based on the 2Gb device by Q412.

Exhibit 8. PC-‐DRAM Market Conditions Exhibit 9. PC Unit Build Trend and Forecast

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!4,000!!

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MILLIONS.OF.GB

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PRODUCTION! DEMAND!GBITS! D+P!RATIO!

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!20,000!!

!25,000!!

!30,000!!

!35,000!!

!40,000!!

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2011! 2012!

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Exhibit 10. Range of PC-‐DRAM Supplier Cash Margins Exhibit 11. Comparison of PC Unit Shipment & Build Trend

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!100,000!!

!110,000!!

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The Server-‐DRAM Market

47. Server-‐DRAM Demand Trend and Outlook. Server sales have hit a patch of weak demand in Q212 as most

corporate end users qualify the new Romley platforms that were released in March. We expect the

qualifications to be completed by July, after which server sales will strengthen through the rest of Q312. Server shipments are seasonally strongest in the fourth quarter and we see that happening in Q412. We see

server unit shipments up 8-9% this year.

48. The fundamentals of server unit shipments continue to be strong. Client loads continue to increase with an

expanding user base of smartphones and other mobile devices and growing social-networking subscribers. More applications continue to increase Internet traffic with increased use of video and demanding cloud-based

applications like Siri. Corporate earnings remain resilient.

49. Unlike PCs, server memory content growth will be high as Romley increases its mix of server unit shipments in

2H 2012. Our forecast shows a 23% increase of the average GB/server from 39.5 GB in 1H 2012 to 48.7 GB in 2H 2012 (Exhibit 12). Our average memory content for 2012 is projected to be 44.4 GB, a 41% increase

over 2011. Romley will continue driving memory content growth strongly through mid-2013. A 2P Romley server will have 64 GB of DRAM memory with the mainstream 8GB RDIMM populating only one DIMM slot

per channel. It can carry 768 GB when all memory slots are populated using the 32GB LRDIMM or HCDIMM. More processor cores and virtualization, serving larger client and traffic loads, will require more memory.

50. Server-DRAM demand (including workstations and enterprise storage) will increase by approximately 50% from 3.0 billion Gbits in 2011 to 4.5 billion Gbits in 2012 (Exhibit 13). About 58% of 2012 server-DRAM

demand will be in the second half. Going forward, we believe that server DRAM demand will show the most resilient growth among major DRAM applications in 2013.

51. Server-‐DRAM Supply Trend and Outlook. Several factors will affect server-DRAM supply in 2H 2012. The

limited availability of the 2Xnm will reduce bit production growth and slow cost reductions. The lower bit production growth will force leading server-DRAM suppliers, Samsung and Hynix, to increase the server-

DRAM's percentage share of their available production even as they expand support for mobile DRAMs. We are also likely to see major changes in supplier shares of the server-DRAM market as leading DRAM companies

struggle to support all DRAM applications. OEMs will probably look to other suppliers - Micron, Elpida, and Nanya - for additional support. It is likely that the server-DRAM share of their portfolios will also expand

significantly. We are therefore likely to see production balanced against demand in 2H 2012, unlike previous quarters. The changes in server-DRAM percentage allocations and supplier shares may make supply look even

tighter.

52. The slower cost reductions change our previous expectation of close to price/GB parity between the 8GB

RDIMM and the 16GB 2R RDIMM. We also expect 32GB RDIMMs -- 4-rank RDIMM, 4-rank LRDIMM, and 2R HCDIMM --- to have a slower price decline. DRAM companies are also likely to resist price reductions and to

attempt price increases of the 8GB RDIMM.



Exhibit 12. Trend of Server Units and GB/Server Exhibit 13. Server-‐DRAM Market Conditions

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CTION.RAT

IO.

MILLIONS.OF.GB

ITS.

PRODUCTION! DEMAND! D-P!RATIO!

The Mobile-‐DRAM Market

53. Mobile-‐DRAM Demand Trend and Outlook. Mobile-handset unit builds (smartphones, tablets, e-Readers, etc.)

will increase by an estimated 41% from Q211 to Q312 (Exhibit 14). This is a substantial increase even by seasonal standards. Mobile-handset unit builds were up 28% last year, in Q311. We believe that the 41%

growth is constrained by supply-chain resources and so we expect builds to spill into the next quarter and increase Q412 builds by 3% from Q312. With these growth rates, system builds in Q312 will be 76% higher

than Q311. System builds in Q412 will be 56% higher than Q411. Our forecasts take into consideration the constrained growth of systems using 28nm SOCs.

54. Robust Smartphone Builds in 2H 2012. This behavior reveals structural transformations in the smartphone

market. On one end, branded phone shipments are consolidating on Samsung and Apple. The two companies have increased their market shares, Apple on the high end and Samsung across the board. On the other end,

we see substantial growth of low-cost and ultra low-cost white smartphones - between 4.5-5.0X more units from Q311 to Q312 - and a widening share from 6% to 20% in the same period (Exhibit 15). This second

group has contributed heavily to the movement of users from feature phones to smartphones but their continuing growth will rely on taking share from smartphone competitors. Between these two ends are

smartphone makers --- like RIM, HTC, Motorola, and Nokia --- that have lost market share but intend to recover in 2H 2012 with new phone releases. We believe the three groups are all building volumes based on

targeted shares. This will lead to a sizable mobile-DRAM demand in Q312 and, so far, a modest increase in Q412.

55. Healthy Tablet Builds in 2H 2012. We expect to see a new round of tablet builds based on the smaller-screen iPad, Windows RT (Windows 8 on ARM), and quad-core based systems. The changing build data shows that

the market is still uncertain about the release schedule of Windows RT. The non-iPad builds will increase mobile-DRAM demand but we believe that the iPad will continue to dominate this space. We assume

production of 120 million tablets in 2012.



56. Memory Content Growth. Mid-range smartphones have increased their mobile-DRAM content to 1GB and a limited number of high-end ones are moving to 2GB. Tablets will move towards 2GB configurations.

However, the increasing share of low-cost white phones and tablets, with less memory content, will limit the average GB/system growth to approximately 20%, from about 600 MB in 2011 to 714 MB in 2012. In 2H

2012, the 8Gb LPDDR2 will be the mainstream product, built with two 4Gb devices in different packaging versions and data I/O widths.

57. Gbit Demand and the Risk of Excessive System Builds. Combined with abundant system builds, the demand for

mobile DRAMs can increase by 92% to 6.2 billion Gbits in 2012, a major change from our previous forecasts. It is important to note that this demand forecast is based heavily on the strength of system builds. There is a

good probability that consumers will not absorb all of the builds, given the global economic climate, and that sales to end users will be much less. The likely result of this will be a buildup of channel inventory and a

corresponding plunge of smartphone prices.

58. In the near term, it can lead to a revision of build plans in Q412 and a contraction of LPDDR2 orders in early

Q113. It can also lead to a structural reduction of the average smartphone price and a smaller bill-of-materials (BOM) budget, similar to what happened to the PC industry at one time with the emergence of sub-$1000 PCs.

The thinner BOM budgets can affect memory content and its cost. But it can also fuel the growth of new and replacement sales of smartphones.

59. Mobile-‐DRAM Supply Trend and Outlook. We see a balance of mobile-DRAM demand and production in 2H

2012 (Exhibit 16). To accomplish that, DRAM suppliers will have to increase the mobile-DRAM's share of their product mix by several percentage points from 2010 and 2011. The increase in production share will be the

result of strong demand growth as well as slower overall DRAM bit production growth for many leading DRAM suppliers. The 2Xnm transition issues will not be relevant in the mobile-DRAM market; most of the available

product will be based on the 3Xnm process.

60. We believe that allocations to the mobile DRAM will take precedence over allocations to server and PC

DRAMs. Mobile-DRAM consumption is heavily concentrated on Samsung and Apple. To participate in the mobile-DRAM market, leading suppliers -- Samsung, Hynix, and Elpida --- will have to support these

customers. Other suppliers will allocate to the white smartphone market to reduce their dependence on low-priced PC DRAMs. These mobile-DRAM allocations will affect DRAM supply in the server and PC markets.

Some DRAM companies will be hard pressed to maintain server DRAM market share. Almost all DRAM companies will find it difficult to increase or maintain PC-DRAM bit supply levels without resorting to

inventory.



Exhibit 14. Build Trend of Systems Using Mobile DRAMs Exhibit 15. Build Trend of Smartphones and Tablets

28%$

16%$

0%$

9%$

43%$

5%$

0%$

20%$

40%$

60%$

80%$

0$

100$

200$

300$

400$

Q211$ Q311$ Q411$ Q112$ Q212$ Q312$ Q412$

QTR

/QTR

%CHA

NGE

%

MILLIONS%OF%SYSTEM

%UNITS%

System$Unit$Builds$ Q/Q$CHANGE$

!"!!!!

!20!!

!40!!

!60!!

!80!!

!100!!

!120!!

Q211! Q311! Q411! Q112! Q212! Q312! Q412!

MILLIONS'OF'UNITS'

APPLE!+!SAMSUNG!SMARTPHONES!

LOW!COST!WHITE!SMARTPHONES!

OTHER!PHONES/OTHER!APPS!

TABLETS!

Exhibit 16. Mobile-‐DRAM Market Conditions

!0.92!!

!0.99!!

!0.91!!

!0.97!!!1.01!! !1.00!!

!0.80!!

!1.00!!

!1.20!!

!1.40!!

!1.60!!

!1.80!!

!+!!!!

!500!!

!1,000!!

!1,500!!

!2,000!!

!2,500!!

Q311! Q411! Q112! Q212! Q312! Q412!

DEMAN

D/PR

ODU

CTION.RAT

IO.

MILLIONS.OF.GB

ITS.

PRODUCTION!GBITS! DEMAND!GBITS! D+P!RATIO!



Price Forecasts

Exhibit 17. DDR3 PC-‐DIMM Price Forecast (USD) Exhibit 18. 4GB PC-‐DIMM Price Against Cost

!$15!!

!$25!!

!$35!!

!$45!!

10! 11! 12! 1! 2! 3! 4! 5! 6! 7! 8! 9! 10! 11! 12!

2012!

4GB$PC

'DIM

M$OEM

$PRICE

$(USD

)$

MANUFACTURING!COST!RANGE!

PRICE!!RANGE!

AVERAGE!PRICE!!

Exhibit 19. Range of PC-‐DRAM Supplier Cash & Profit Margins

!120%&

!80%&

!40%&

0%&

40%&

80%&

Q411& Q112& Q212& Q312& Q412&

RANGE

&OF&CA

SH&&&GRO

SS&M

ARGINS&

RANGE&OF

&EST.&SUP

PLIER&CASH

&MARGINS&

RANGE&OF

&EST.&&SUP

PLIER&GRO

SS&MARGI

NS&

The forecast lifts the 4GB price range above the range of manufacturing costs by September (Exhibit 18). All OEM suppliers achieve positive cash margins by May leading to more confidence in capital spending to continue 2Xnm and 3Xnm transitions in early 2013 (Exhibit 19). Only Samsung and Hynix can achieve positive operating margins within Q312. Profit and cash margins stay even with falling Q412 prices.



Highlights

• We now expect the average PC-DRAM price to climb past July and through September, unlike our previous

forecast, due to the limited 2Xnm transition and mobile/server DRAM allocations (Exhibit 17).

• Through August, the average price will be pulled up by high-priced vendors until profitability is reached.

In September, the average will be pushed up by low-priced suppliers still seeking profitability.

• OEM inventory burns will influence low-priced suppliers with less specialty-memory allocations.

However, its impact may be countered by lower PC-DRAM bit output across the supplier base in Q312.

• Declining PC unit builds can push prices down in Q412. A price crash is unlikely unless mobile and

server DRAM demand also weaken. Several suppliers will still have falling PC-DRAM bit output.

Profit and cash margins can be preserved even with the Q412 price reductions.

• The impact on the notebook BOM is minimal. BOM cost increases by only 0.7% in 2H 2012 assuming all

else the same. The DRAM will be only 5% of average BOM cost, up from 4% today.

Exhibit 20. DDR3 RDIMM Price Forecast (USD)

Exhibit 21. Price/GB of Different RDIMMs

$50$

$75$

$100$

$125$

$150$

10$ 11$ 12$ 1$ 2$ 3$ 4$ 5$ 6$ 7$ 8$ 9$ 10$ 11$ 12$

2011$ 2012$

8"GB

YTE"RD

IMM"EQUIVAL

ENT"PR

ICE"(USD

)"

4GB$RDIMM$ 8GB$RDIMM$

16GB$4R$RDIMM$ 16GB$2R$RDIMM$

Exhibit 22. RDIMM VS. SODIMM Gross Margins

!30%%

!20%%

!10%%

0%%

10%%

20%%

30%%

40%%

50%%

1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12%

2012%

AVER

AGE&GR

OSS&M

ARGIN&

8GB%RDIMM%

4GB%SODIMM%



Highlights

• Despite weak Q212 demand, Samsung is resisting the move of 8GB RDIMM prices to $60 or lower. Without a

2Xnm supply boost and strong internal mobile-DRAM demand, its allocation to the server-DRAM market is

limited. This action is likely to keep 8GB RDIMM prices from descending in the coming months despite weak

server sales (Exhibit 20)

• With slow 2Xnm progress and limited transition, we

expect 16GB 2R RDIMM prices to descend at a slower rate and not achieve price/GB parity with the 8GB

RDIMM this year (Exhibit 21).

• We believe August will be the next turning point for the

8GB RDIMM. Demand will pick up and the PC-DIMM profit margins of lower-cost vendors will come close to

that of the 8GB RDIMM (Exhibit 22). This probability of an 8GB RDIMM price increase is high and will depend

on how strong server-DRAM demand is and how high the 4GB SODIMM price rises.

• We believe that the slight excess supply of PC-DRAMs will prevent a major 8GB RDIMM price increase. We

still see prices to be relatively stable and within the $60-65 envelope we predicted at the start of the year.

• Limited lower price movement is likely in Q412 as more 2Xnm production and inventory flow into the market.

Exhibit 23. LPDDR2 Price Forecast (USD)

Exhibit 24. LPDDR1 Price Forecast (USD)

Exhibit 25. Price/Gb Trend

!"!!!!

!0.50!!

!1.00!!

!1.50!!

!2.00!!

!2.50!!

!3.00!!

Q2! Q3! Q4! Q1! Q2! Q3! Q4!

2011! 2012!

PRICE&PE

R&GIGA

BIT&(USD

)&

1Gb!LPDDR2! 2Gb!LPDDR2!

4Gb!LPDDR2! 8Gb!LPDDR2!



Highlights

• The 8Gb LPDDR2 has become the mainstream mobile DRAM in Q112 with the lowest price

per Gb (Exhibit 23 and 25).

• 8Gb and 4Gb LPDDR2 prices are decreasing by

6% from Q112 to Q212. The range of 4Gb prices has narrowed while that of the 8Gb has

widened.

• We expect slow price reductions in Q312 and

Q412 because of the strong demand growth and major increases in allocation percentages.

• The difference between the profitability of LPDDR2s and PC/Server-DRAMs will narrow in

Q412. This will begin to affect the previous isolation of mobile-DRAM prices from the rest

of the DRAM market.

• We currently expect a deeper price reduction in

Q113 of more than 10%. Range low prices in Q113 can experience operating-margin

pressures at the 3Xnm process at an 8Gb LPDDR2 price below $5.50.

The DRAM Market Advisor - dedios.com · The DRAM Market Advisor May 2012 DE DIOS & ASSOCIATES ......

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Transcript of The DRAM Market Advisor - dedios.com · The DRAM Market Advisor May 2012 DE DIOS & ASSOCIATES ......