Revenue of the top three DRAM server suppliers (Samsung, SK Hynix and Micron) rose 25.2% for the third quarter compared with the previous three-month period, reports DRAMeXchange, a division of TrendForce. Strained DRAM supply was even more evident during the third quarter as limited production capacity and limited technological progress for the memory industry encountered robust demand from data centers in North America. With the ASP rising, server DRAM suppliers saw substantial increase in their revenues.
DRAMeXchange analyst Mark Liu pointed out that shipments of server systems will remain brisk in the fourth quarter, aggravating the undersupply situation for server DRAM. The contract prices of server memory modules for the year’s final quarter are projected to increase by 6% to 10% on average compared with the third quarter. Suppliers therefore can expect to see their revenue and profit margins coming to a new high for the year.
Taking advantage of its lead in market share and manufacturing technology, Samsung staged a particularly impressive performance in the server DRAM market during the third quarter. The supplier’s revenue advanced by 28.4% from the second quarter to around US$2.55 billion, capturing 45.9% of the world’s server DRAM market.
It is worth noting that Samsung is currently focusing on expanding the market share of its high-capacity server memory modules. As the demand for server systems hits its peak for 2017 in the fourth quarter, the demand for high-capacity modules will also follow up to a new high for the year. Demand for server DRAM modules will also be driven by the increasing market availability of Intel’s latest platform Purley. Even though demand exceeds supply, Samsung will make the necessary adjustments as to keep up its shipment fulfillment rates related to orders from the OEMs and ODMs. Samsung expects further increases in its server DRAM revenue as long as the demand of its main clients are satisfied.
Samsung’s server DRAM manufacturing this year is still mainly based on the 20nm process. The share of its 18nm process in its server DRAM production capacity is projected to reach 40% this fourth quarter. The 18nm is expected to become the main process for Samsung’s server DRAM in the first quarter of 2018, with its capacity share exceeding 50% by the end of the period. Furthermore, Samsung is on track to use the 18nm process for its high-density 16Gb mono-die chips and has already sent samples to Intel for testing. The initial production of the 18nm 16Gb mon-die chips is scheduled for the second quarter of 2018. Samsung’s cost structure will be significantly improved with the 18nm process, and in turn the company will have an edge in the market for high-density server memory modules.
SK Hynix too benefitted from the server demand in the North American data center market during the third quarter. As a result, the company’s server DRAM revenue leapt by 30.1% from the second quarter to around US$1.79 billion, along with significant improvement to the operating margin.
SK Hynix still relies mainly on the 21nm process for the production of its server DRAM. The company will start producing 18nm server DRAM products in small volumes later at the end of the first quarter of 2018. After the second quarter of 2018, SK Hynix is expected to ramp up its 18nm production. With yield improvement and certifications from ODMs, the company will have a greater share of its production capacity transitioning to the 18nm.
In terms of capacity planning, SK Hynix will gradually raise the production capacity at the Phase 1 operation of its M14 fab at Icheon, South Korea. The company is also accelerating the 18nm conversion of its fab at Wuxi, China. At the end of 2017, server DRAM is estimated to account for more than 30% of SK Hynix’s product mix. SK Hynix will adjust the allocation of some production capacity according to changes in demand as to maintain a healthy profit margin. Nevertheless, the memory supplier wants to take advantage of the influx of orders for server systems. Besides fine-tuning product lines, SK Hynix will also raise shipment shares of its high-capacity server DRAM modules (e.g. 32GB and 64GB modules). High-capacity modules are forecast to represent about 60% of the supplier’s server DRAM product shipped for 2018.
Rising prices and cost advantage from die shrink, Micron increased its bit shipments of server DRAM between the second and the third quarter. Some of Micron’s server memory products also saw a hike in their ASPs. All these led to a sequential increase of 13% for Micron’s server DRAM revenue in the third quarter, coming to around US$1.21 billion.
With server DRAM still accounting for 30% of its overall product mmix, Micron’s profit growth is now mainly driven by the increase in ASP. In terms of capacity planning for next year, the U.S. memory maker will likely raise its production capacity in keeping with the progress made on its 17nm progress. Currently, Micron has already substantially increased the yield rate of its 17nm process and sent samples to clients for certification. Whether the 17nm technology will be used for Micron’s server product lines will depend on the situation after the second quarter of 2018. If the yield rate has reached the necessary economies of scale, then Micron will begin to increase the wafer input on the 17nm. For now, the company will continue to use its 20nm technology for manufacturing its main offerings.