Asia Memory-Bad memories fading

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TMT <strong>Memory</strong> Devices Technology 8 October 2010 abc Nevertheless, we expect demand downside for commodity DRAM to be relatively limited due to rising greater affordability of the modules. We expect DRAM price declines to start slowing in 2Q11 as lower ASPs from sharply higher supply during 4Q10-1Q11 stimulate higher content/ system and as supply increases peak out. Overall, we expect content/system to rise 33% next year, following a 27% y-o-y rise in 2010; high ASPs this year depressed content growth this year, though the extent of DRAM content reduction or freeze appears to vary according to PC OEMs. DDR3 contract and spot price (USD) 3 2.5 2 1.5 1 Jul-09 Oct-09 Source: DRAMeXchange Jan-10 Process migration Apr-10 Jul-10 1Gb DDR3 128Mx 8 1066MHz spot 1Gb DDR3 128Mx 8 1066MHz contract We believe much of the DRAM bit supply growth is coming from process migration, with relatively low actual wafer capacity additions; we forecast c7% q-o-y wafer capacity increase, but a 49% supply increase for 2010. The race to improve processes for cost and product competitiveness is a key feature of the current spate of bit growth. DRAM process migration – Samsung Electronics 100% 80% 60% 40% 20% 0% 2007 2008 2009 2010f 2011f 2012f 8xnm 6xnm 5xnm 4xnm 3xnm 2xnm Source: Company, HSBC estimates Process migration is increasing the number of dies per given wafer. Wafer capacity was relatively stable in the past two years, helped in part by removal of uneconomic 200mm fab capacity. DRAM capex fell copiously after peaking in 2007, hitting a nadir of cUSD4.5bn last year. We believe most expenditure was on maintenance and process migration. DRAM supply 25,000 20% 20,000 15% 15,000 10% 10,000 5% 5,000 0% - -5% 2008 2009 2010f 2011f 2012f Wafer Capacity (12" equ. kw py , kw pm) Change (%) Source: Gartner, HSBC estimates This year, we estimate capex to rise c147% to cUSD11.2bn as process migration accelerates and some wafer capacity is added (about 7%, we estimate), notably by Samsung. Next year, we expect DRAM capex to rise only 9% y-o-y, with the bulk of it on process migration; we only expect wafer capacity we expect wafer capacity to rise 4% y-o-y. These capex estimates translate into capex/sales of c26% this year and c28% next 43
TMT <strong>Memory</strong> Devices Technology 8 October 2010 abc year. Reassuringly, this is still well below the 2005-08 average of 54%. Global DRAM capex (USDm) DRAM contract prices 3 2.5 15,000 200% 2 10,000 150% 100% 1.5 50% 1 5,000 - 2008 2009e 2010f 2011f 2012f 0% -50% -100% Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 1Gb DDR2 128Mx 8 667 Mhz contract 1Gb DDR3 128Mx 8 1066MHz contract Source: DRAMeXchange Source: Gartner, HSBC forecasts Total (HSBC) y-o-y (%) The off-shoot of this is surging bit supply in 4Q10-1Q11, when the full brunt of extra capacity by Samsung, plus commercial yields from process migration by second-tier players such as Nanya and Inotera, comes into effect, as they bring on line 5xnm capacity that was held up in the past 2- 3 quarters due to yield issues. We believe Nanya is now achieving c70% yield for its 5xnm process, which is sufficient to mass produce. We expect global supply bit growth in 3Q-4Q10 to rise 11% and 18% q-o-q respectively. Interestingly, DDR2 and DDR3 price declines have converged recently; DDR3 contract prices plunged 10-11% in 1H September. We believe the decline in DDR3 prices reflects higher supply levels following DDR2/3 production cross-over at leading players in 1Q10 and higher DDR3 production at second-tier players. ASP decline has also been impacted by demand side; we believe this ASP decline reflects unwillingness on the part of PC OEMs to build memory inventory on low PC unit shipment growth this quarter following very strong 2Q shipments, plus their anticipation of even lower prices. Indeed, DRAM contract ASPs have remained under pressure after hitting a peak in June. From their peaks in May/June, DDR3 module prices are down 27% and DDR2 is down 23% on a periodend to period-end basis, according to DRAMeXchange. 2GB DDR3 modules, the mainstay of PC memory now (DDR2 is almost defunct as 80%-plus of PC OEM/ODMs have migrated to DDR3) fell to USD34. 44
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