Consumer Demand Remains Sluggish, Supply Chain Inventory Remains High, Q4 DRAM Price Decline Extended 13~18%, Says TrendForce EMSNow

According to TrendForce research, rising inflation has weakened demand for consumer goods, flattening the peak of the peak season. In 3Q22, memory bit consumption and shipments continued to show a quarterly decline. Due to a significant decline in memory demand, terminal buyers also delayed their purchases, which led to further escalation of pressure on vendor inventories. At the same time, the strategies of various DRAM vendors to increase their market share remain unchanged. There were instances of “Q3/Q4 consolidated price negotiations” or “quantity negotiation before pricing” in the market, which are the reasons that led to DRAM prices surging to 13 ~18% in 4Q22.

In terms of PC DRAM, due to weak laptop demand, PC OEMs will remain focused on destocking DRAM inventory. While DRAM supply hasn’t really reduced production as operating profit remains favorable, bit production continues to increase and the pressure on supplier inventories is becoming increasingly evident. From a DDR4 and DDR5 perspective, the expected price drop in 4Q22 is 13-18%, with DDR5 dropping more than DDR4. However, as the penetration rate of DDR5 continues to increase, coupled with a higher unit price, the penetration rate of DDR5 in the PC DRAM sector will increase by 13-15% in 4Q22, which will support the average unit price for overall PC DRAM (DDR5 and DDR4 combined) slightly, and PC DRAM prices in 4Q22 are expected to fall approximately 10-15%.

In terms of server DRAM, server terminals reduced their purchases of server DRAM bits due to a delay in their new platform and full server shipments are expected to decline in 4Q22. The client server’s DRAM inventory will be at a high level for approximately 9-12 weeks. At the same time, as Chinese OEMs and cloud service providers slowed their buying momentum, manufacturers focused on negotiating price and volume with North American cloud service providers. However, the production cannot be efficiently digested, which compounds the pressure on manufacturers’ inventories. Furthermore, with the exception of the binding two-quarter consolidated price schedules initially traded in 3Q22, it cannot be ruled out that at the end of this year, sellers will offer buyers lower prices to make advance purchases for on 1Q23. As a result, the quarterly DDR4 price decline in 4Q22 is expected to reach 13-18%. DDR5 will officially enter mass production in 4Q22 with sample prices down 25-30% from previous quarter sample prices. However, the initial mass production penetration rate is only about 5%. As a result, the impact on the overall price of server DRAM (DDR5 and DDR4 combined) is limited and server DRAM prices are expected to drop approximately 13-18% in 4Q22.

In terms of mobile DRAM, smartphone brands continue to adjust their mobile DRAM inventory. Inventory levels are expected to be held at 7-9 weeks by the end of 3Q22 and variables remain in the sellers’ market. Consequently, smartphone brands continue to lower their annual production targets, which increases the difficulty of destocking mobile DRAMs. As the proportion of advanced processes used by manufacturers continues to grow, their contribution to mobile DRAM bit output has increased. The consolidated price negotiation strategy of these factories in 2H22 has yet to bear fruit, so demand from client brands has not increased. Although new Apple products are expected to drive market demand in 4Q22, due to pressure from previously accumulated inventory and increased supply in 4Q22, pressure on factory inventory will worsen. The price of mobile DRAM is expected to drop around 13-18% in 4Q22 and it may continue to deteriorate.

In terms of graphics DRAM, TrendForce expects another round of price cuts for graphics cards. However, various types of terminal promotions can only eliminate pre-existing inventory, which has limited value in generating new demand. Demand for 8GB and 16GB GDDR6 weakened simultaneously due to buyer inventory adjustment. Buyer buying volume was not boosted even though DRAM vendors reduced prices in 3Q22. As a result, the inventory of pre-existing graphics DRAMs continues to accumulate, creating greater pressure associated with the incremental production of previous wafer boots. From the perspective of 4Q22, although there are only two 8Gb GDDR6 suppliers, Samsung and SK hynix, due to enormous inventory pressure, the two sides will inevitably compete for orders by reducing price of the other. Therefore, the drop in GDDR6 8GB in 4Q22 could be greater than that of GDDR6 16GB, lowering prices by around 10-15%.

In terms of consumer DRAM, although networking benefited from an alleviation of material shortages and infrastructure upgrades in Europe and the United States, the stabilization of consumer DRAM shipments, the compensation of declining demand for other end products has proven difficult. In a bearish price cycle, customers have kept inventory at healthy levels and are not actively stocking. Consumer DRAM demand is expected to remain weak. Affected by downward revisions in smartphone production throughout the year, demand for image sensors (CIS) also declined. As a result, Korean manufacturers have slowed down the pace of migrating old processes (DDR3/DDR4) to CIS, which has resulted in continuous production of large volumes of DRAM bits and inventory pressure that has become difficult to reduce. As the excess supply has not abated, DDR3 and DDR4 prices are expected to fall 10-15% in 4Q22 and overall consumer prices will fall 10-15%.

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