It is said that China’s Anti-Monopoly Bureau of Ministry of Commerce held a meeting with representatives from Micron Technology on 24 May 2018, to express concerns about the continuing price increase for PC DRAM products over the past quarters. The rising prices have made Chinese PC-OEMs struggling under component cost pressure. In addition, Micron had previously interfered with the supplying of upstream equipment to JHICC in contravention to the spirit of fair competition, says DRAMeXchange, a division of TrendForce. Samsung, SK Hynix and Micron have gained a total market share of 96% in 1Q18, reflecting the current oligopoly in DRAM market compared with the markets of other semiconductor components. Therefore, DRAMeXchange anticipates that such anti-trust investigations may happen again, which may restrain the price increase.
According to DRAMeXchange, the top three suppliers – Samsung, SK Hynix and Micron – took shares of 44.9%, 27.9%, and 22.6% respectively in the DRAM market, reflecting the current oligopoly. The anti-monopoly regulations of China aims to ensure fair competition in the market, so that no single supplier becomes too dominant in a market and manipulates the prices. On the other hand, the production cycle of DRAM is more than eight weeks; and it takes at least one year for the CAPEX to turn into new production capacity so that suppliers can increase the chip output. Therefore, DRAM manufacturers are most likely to be investigated due to “limiting the amount of products for sale” in the antitrust laws.
Being the largest importer of memory products, China is attentive to the DRAM price trend
According to the data of TrendForce, China has become the largest importer of memory products, consuming 20% of DRAM and 25% of NAND all over the world. In the recent years, the Chinese government has been actively building up domestic DRAM and NAND Flash industries. However, this cannot cope with the cost pressure immediately since it will take at least a couple of quarters for China to realize independent R&D in technology and stabilize the scale of mass production. Earlier this year, China’s National Development and Reform Commission (NDRC) got involved in the DRAM pricing by meeting with Samsung on the price issues. Currently, there is no evidence that the two meetings are related, but it is obvious that the Chinese government has been very attentive to the price upswing of DRAM.
DRAMeXchange notes that, the suppliers have shown high respect for the Chinese market, which consumes considerable amount of memory products, thus China’s involvement in prices will undoubtedly restrain the price increase. DRAMeXchange’s data show that the top three suppliers have all pushed their respective operating margins significantly to the level of 50-70%, the highest record in history. It is also unprecedented that the profitability of the top suppliers in DRAM is exceeding that in Application Processor, which is more technically advanced.
In order to ease the tight supply of DRAM, the suppliers have been increasing their capital expenditures in the past two years. In addition, faced with the difficulties in shrinking of processing nodes, the suppliers have to add new production capacity to increase the supply effectively. Therefore, more new production capacity for DRAM is expected to come out in 2019.
For the long term, the Chinese government has been developing domestic DRAM and NAND Flash industries since 2014. There were also proposals of mergers and acquisitions backed by the government resources with the intention to acquire technology and expand market size rapidly. Most of the acquisition proposals were refused by the U.S. government, bringing more uncertainties for the China-U.S. relationship. China’s meeting with Micron this time may make the situation worse, increasing the possibility of the trade war between China and U.S.