Published by North Shore Components on
Mar 1, 2021 4:33:58 PM
Since 3Q20, memory suppliers’ production capacities allocated to server DRAM have dropped to about 30% of the total DRAM production capacity, according to TrendForce’s latest investigations.
While this decrease took place as suppliers sought to increase the supply of other DRAM products in higher demand, it also represented an attempt for them to adjust the ASP of various DRAM products. Furthermore, since the persistent demand for consumer electronics has shown no signs of slowing down in 1Q21, as of now suppliers have also been maintaining the same capacity allocation as last year. However, given that second quarters have traditionally marked the cyclical upturn in server shipment, server DRAM demand is thus expected to ramp up in 2Q21, in turn prompting suppliers to raise their quotes for server DRAM. TrendForce is therefore revising up the QoQ increase in server DRAM contract prices for 2Q21 from the original forecast of 8-13% to the adjusted forecast of 10-15%, with certain transactions potentially involving as much as a 20% price hike.
Server DRAM contract prices are likely to increase by more than 40% throughout the year as demand is likely to persist through 3Q21
With regards to demand, after DRAM prices reached rock bottom at the end of last year, the oversupply situation in the market and the pressure on buyers to destock their inventory have both gradually stabilized by now. As prices closed in on historically low levels, buyers became more and more active in their procurement activities. In addition, data center demand for server DRAM is set to increase after 1Q21, driven by the increasing cloud migration needs of the post-pandemic “new normal”. This demand will likely persist through 2H21, thereby injecting additional growth momentum into the overall server market.
With regards to supply, on the other hand, DRAM suppliers will be relatively conservative in their capacity expansion efforts this year, with most suppliers having no plans to expand their capacities. Also, the oligopolistic nature of the DRAM industry means suppliers generally prioritize profitability over other factors when allocating their production capacities. Case in point, the rising popularity of WFH and distance education led suppliers to reallocate their production capacities last year. More specifically, suppliers allocated their capacities to first fulfill the high demand from the smartphone and notebook computer markets in 3Q20. As a result, capacities allocated to server DRAM underwent a corresponding decline during this period.
On the whole, TrendForce expects server DRAM contract prices to increase by about 8% QoQ in 1Q21 and by 3-4% MoM on average within the quarter. Moreover, TrendForce also does not rule out the possibility that server DRAM contract prices may experience additional slight MoM increases past this period given that contract prices are negotiated on a quarterly basis. Looking ahead, TrendForce indicates that server DRAM will remain in high demand through 3Q21, as geopolitical uncertainties and the shift of work life towards WFH continue to generate upward momentum for server shipment. Therefore, server DRAM contract prices are expected to rise by more than 40% cumulatively from late 2020 to late 2021.