2009 NAND Demand Bit Growth 93% But Gradually Declined

According to DRAMeXchange, the DRAM chip spot price once again hit historical low, the DDR2 1Gb eTT chip spot price plunged from 0.8 USD to 0.68 USD from Nov. 25th to Dec. 1st, with a 34% drop range  of the single month November. Meanwhile, the DDR2 512 Mb eTT chip price fell from 0.39 USD to 0.35 USD with a 10% drop range. The price dropped 33% in November alone. The sharp decline of the spot price last week was mainly due to the inventory regulating and month end window dressing. But with the closing to the year end and the worsening demand, it’s worth paying attention that some spot market participants are considering getting rid of their inventory in order to have cash in hand and survive during the economic downturn. Irrational price plunging may take place before the year end once again.

In the contract market, the sharp decline of the DRAM spot price last week will influence the contract price negotiation this week. From market analysis, DDR2 667 Mhz 1GB contract price plunged from the high of 22 USD in July to 9.5 USD in 2H November this year, dropped 57% in five months. Meanwhile, the DDR2 667 Mhz 2GB also dropped 55%. According to sources, due to the global financial crisis and the economic downturn, the market demand of PC OEM had turned from weak to frozen. Even the DRAM order cancellations have been heard in 2H November and the situation has become serious. We are still pessimistic toward the contract price of 1H December and the price decline is very possible.

The DRAM 1Gb eTT chip price has dropped from the high of 2.25 USD at the beginning of this year to 0.68 USD with a range of 70% decline. The current price is already lower than the DRAM cash cost 1.3 to 1.5 USD. With further analysis, the current packaging and testing price is around 0.35 to 0.4 USD. If we took this price as an example, one 1Gb eTT DRAM chip priced at 0.68 USD can only contribute 0.28 USD to the DRAM vendor. What’s even worse is that the DDR2 512 Mb chip price is almost equal to the packaging and testing price, which means that it comes to a "no cash inflow but only cash outflow" stage for the DRAM vendors. From the current chip price, the output reduction had increased the cost per chip and made the DRAM vendors suffer. The vendors without output reduction suffered even more due to the large volume of production. The loss in Q4 will increase and surpass Q3. Although the DRAM output has decreased 20% since September, it’s even more necessary that Samsung, Hynix, and Micron join the output reduction. If the price remains low until Q109, the survived DRAM vendors will be heavily wounded.

93% NAND Flash demand bit growth in 2009,
Memory card and USB Flash Drive
still are the main market applications

After the NAND Flash market enjoyed years of three digit annual growth, we’ll see two digit annual growth in 2009 due to the global financial crisis, which started in Q208 and swept north America, Europe, Asia, and other emerging markets, and drove the Q3 shipment numbers of consumer electronics down far below last year. Meanwhile, the effect of financial crisis impact is still diffusing, and the consumer confidence has also turned conservative with the global recession and brought down the consumer expenditure. Therefore we lowered the shipment numbers of NAND Flash main applications and estimate that the NAND Flash demand bit growth will fall from 125% in 2008 to 93% in 2009, reached 55,373 Mb.

Among the four NAND Flash main applications, which are mobile phone, digital camera, USB Flash drive, and MP3/PMP, the mobile phone Q308 shipment only grew 2% QoQ, lower than the 5 to 6% YoY growth in the same period of the past two years. We expect the quarterly shipment growth of mobile phone in Q408 to be only single digit, quite different from 17% and 19% in the past two years. Since the Q308 and Q408 shipment growth momentum has sharply declined, we forecast that the annual growth of mobile phone shipment in 2009 to be zero, and the shipment to be 1.23 billion units, about the same as in 2008. If the actual Q4 mobile phone shipment is lower than expected, the 2009 mobile phone market will show negative growth.

Among the digital camera, USB Flash Drive, and MP3/PMP applications, we forecast the digital camera shipment to grow 8% annually in 2009, with the shipment scale of 151 M units, and the growth rate is far lower than 21.3% in 2007 and 23.4% in 2008. As USB Flash Drive is concerned, in spite of the new applications have expanded to automotive multimedia system, digital TV, DVD player, set top box, and digital frame, the major end demand is still PC. Since the annual shipment growth of PC (includes DT, NB, and Netbook) in 2009 is expected to be only 3% to 4%, we forecast the 2009 USB Flash Drive shipment to grow about only 11%, with the shipment number of 196 M units. The growth rate is far lower than 33% in 2007 and 26% in 2008. In MP3/PMP, the mobile phone with music player function has been replacing the MP3/PMP, we forecast that the MP3/PMP shipment to remain around 160 M units, which is close to the 2008 number.

From the NAND Flash usage aspect, external memory including memory card and USB Flash Drive accounts for about 64% and the built-in NAND Flash accounts for about 36%. These ratios will not have significant change in 2009, the memory card and USB Flash Drive will still account for 65% of the market and the built-in NAND Flash will account for 35%. The percentage of built-in NAND Flash will not rapidly increase is due to the stagnant market growth of MP3/PM in 2009, and the SSD penetration rate in 2009 is expected to be lower than 2008, since low cost PC vendors will adopt high capacity HDD to attract consumers. Therefore the time point of SSD to take off has been delayed and the penetration rate of built-in NAND Flash will not increase too much in the short run.