The chart shows DRAM spot prices as of mid-May 2016 for 4Gb DDR3 and DDR4 DRAM, based on data provided by inSpectrum. According to this data, 4Gb DDR3 spot prices decreased by 17% YTD, while 4Gb DDR4 prices decreased by 30%. DDR3 prices decreased by ~50% last year.
To interpret what market DRAM prices potentially mean for the profitability of DRAM makers, it is helpful to keep the following rough guidelines in mind.
1. DRAM spot prices shown in this chart (and broadly tracked by various market participants) are primarily representative of DRAM components used in PC applications. The PC category currently makes up ~25% of all DRAM consumption by volume. In other words, the spot prices shown here do not directly inform us about pricing dynamics in ~75% of the DRAM market which is subject to various customer-specific customization or qualification. However, it is generally fair to assume that barring specific supply/demand imbalances in certain categories of demand, the general direction of overall pricing may follow the trend set by PC DRAM prices.
2. Industry leader Samsung Electronics was targeting overall DRAM component cost reduction in the ~20% range last year. It is probably fair to assume that Samsung may be able to achieve a similar or lower level of cost reduction going forward, given Moore’s Law challenges limiting technology scaling. In other words, if overall DRAM Market prices were to decline by ~20% per year, Samsung could potentially be in a position to maintain stable operating margins for DRAM, as I believe it did last year. Other DRAM makers who are unable to achieve a commensurate level of overall cost reductions, would see their DRAM operating margins decline.
THIS ARTICLE IS NOT AN EQUITY RESEARCH REPORT.
Disclosure: At the time of this writing, the acteve Model Portfolio held long positions in MU stock, but did not hold any positions in Samsung Electronics or SK hynix.
Additional Disclosures and Disclaimer
Source: DRAM Spot Price data provided by inSpectrum. Stock market data provided by Sentieo