Price decline looks to start in fourth quarter and continue through 2019
DRAMeXchange, a research firm that tracks memory chip pricing, is now forecasting that the average selling prices (ASPs) for both DRAM and NAND will decline sequentially in the fourth quarter. The firm also expects ASPs for both products to decline significantly in 2019 compared to this year.
NAND pricing has been soft for several months now, declining by 10% in the third quarter, according to DRAMeXchange, which expects NAND ASPs to decline by 10% to 15% in the fourth quarter. The firm forecasts that NAND ASPs will decline by 25% to 30% next year, thanks to sluggish demand for consumer electronics and increased 3D NAND production capacity and yields among suppliers.
Contract prices for DRAM rose only 1% to 2% in the third quarter and are forecast to decline by 5% or more in the fourth quarter, ending a string of nine consecutive quarters of price growth, said DRAMeXchange. The firm predicts that DRAM prices will decline by 15% to 20% in 2019, but it added that the declines may be steeper if demand weakens for servers and smartphones.
According to IC Insights, a separate research firm, the overall DRAM ASP reached $6.79 in August, a whooping 165% increase from two years earlier in August 2016. The firm said that while DRAM ASP growth has slowed this year compared with 2017, it nevertheless remained on a solid upward trajectory for the first eight months of 2018.
DRAM has always been a highly cyclical business, known for huge booms and downturns. But a convergence of market dynamics — including a smaller supplier base and a much larger pool of demand drivers — have led some to speculate that the DRAM cycles as we have known them may be a thing of the past. However, analysts generally believe that the DRAM market is still as susceptible to cyclicality as it has always been.
“The DRAM market is known for being very cyclical, and after experiencing strong gains for two years, historical precedence now strongly suggests that the DRAM ASP (and market) will soon begin trending downward,” said IC Insights in a recent report.
A major indicator that DRAM ASPs are on the verge of decline is back-to-back years of big increases in DRAM capital spending, flooding the market with capacity that is now outstripping demand. According to IC Insights, DRAM capital spending jumped by 81% to $16.3 billion last year and is expected to climb by another 40% to $22.9 billion this year. “Capex spending at these levels would normally lead to an overwhelming flood of new capacity and a subsequent rapid decline in prices,” said the firm.
However, IC Insights also pointed out that what is slightly different today from past years is that big gains in productivity normally associated with significant spending increases are much lower at the sub-20-nm process nodes now being used by DRAM suppliers.