Supply slowdowns to help prices
NAND Flash-related companies now turn cautious to 4Q08 demand outlook as the global financial crisis continues to woe. Macro-uncertainties have shortened demand visibility of NAND Flash downstream makers to just 2-4 weeks. Buyers now choose to review orders and inventories every two weeks. To react to customers' caution to 4Q08 and 2009, NAND Flash suppliers now review their production plan & investment strategy every month. Thus, most NAND Flash makers have not decided their 2009 production plan and capex budget yet. In light of NAND Flash market suffers from the oversupply & sluggish demand in 2008, we believe that 2009 bit growth and capex of NAND Flash suppliers will be lower than 2008's 139% (yoy) and US$7.9bn, respectively.
Some positive events happened in September. Hynix announced that it will further cut its 8-inch fab output. IM Flash will delay production at the new Singapore 12-inch fab to late 2009. Samsung, Toshiba and SanDisk all are considering slowing down their 1Q09 wafer capacity growth rate or keeping flat from late 2008. In short, NAND supply will slow down in the near future. At the same time, new products with higher NAND Flash capacity (such as smart phones, MP3s, UFD and low-price PCs) will be introduced in 4Q08, helped by the over 80% year-to-date drop in prices for the mainstream NAND Flash chips. We expect NAND Flash bit consumption will increase 25% (QoQ) even though the unit demand will shy from seasonal patterns. Recently governments' measures of stabilizing financial markets may also help improve the confidence of market consumption. The improved supply-demand dynamic should therefore help the NAND Flash price environment in 4Q08.
2HSep. NAND Flash contract price review
Average NAND Flash contract price dropped at the range between 0 to 12% in 2H September. SLC products stabilized due to decreasing supply and demand. Main-stream MLC products fell between 3 to 12% because down-stream companies kept lowering inventory level reflecting uncertainty in 4Q. Meanwhile, upper stream vendors were facing quarter-end pressure and showed more flexibility for price.
Hynix's further reduction announcement in early September and increasing high-capacity NAND Flash applications, like new smart phones, MP3, low-price PCs and UFD have also encouraged the market. Besides, price fell at a greater percentage than expected from the beginning of 2008 has also stimulated potential demand. However, in the short term, down-stream companies still need to lower inventory and this may resist later purchasing. Price is likely to either stabilize or mildly fall in 4Q.
