Macquarie Research:: DRAM prices stabilise

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DRAM prices stabilise
Event
 According to inSpectrum, DDR3 module and chip prices were flattish HoH for
1H February, echoing our view that prices are bottoming in 1Q11. We could
see a potential price rebound in 2Q11 given the recent run in spot prices. We
reiterate our positive view on DRAM.

Impact
 Module/chip prices flat in 1HFeb. inSpectrum released its 1H Feb price for
the 2GB module, which stayed flat at US$17, while DDR3 1Gb and 2Gb
prices were flat and down 1.63% HoH at US$0.94 and US$1.87, respectively.
Despite the PC shipment delay due to Intel's Sandy Bridge chipset design
flaw, the pace of price decline has certainly slowed (Jan prices were down
~10% from December; ~5% in each half), which affirms our view that DRAM
prices are likely to bottom in 1Q11.
 In addition, according to inSpectrum, while most PC OEMs showed no sign of
making any material DRAM procurement in Feb, most of them have
lean/healthy inventory at about 4 weeks. We believe that as the PC OEMs
resume their Sandy Bridge PC product shipment in volume around the
MAR/APR timeframe, DRAM procurement should pick up and help price
recovery.
 PC DRAM to Mobile DRAM. To take advantage of the ongoing mobile frenzy,
DRAM makers, including Inotera, have committed greater capacity from
commodity DRAM to mobile DRAM going forward. We estimate roughly 10-
15% of the current PC DRAM capacity would be converted to mobile DRAM
by the end of this year; 30-40k from Elpida, 20-30k from Inotera and 50-60k
each from Samsung and Hynix. Therefore, this should help sustain the
potential PC DRAM price recovery into 2H11.
 Inotera's Jan sales. Bucking the industry trend, Inotera's Jan sales were up
3.4% MoM to NT$3.22bn, in spite of the 10% decline in the contract price
during the month. Again, we believe this is attributable to the company's 50nm
ramp up, as well as higher wafer shipment.
Outlook
 While PC demand remains lackluster, most of the pricing pressure has
subsided (as evidenced by the recent price trend, particularly in the spot
market, which saw prices up 10%+ and 30%+ for DDR3 1Gb and 2Gb,
respectively, in the past two weeks) and contract prices could see a gradual
rebound in 2Q11, in our view
 Together with our regional colleagues Damian Thong and Daniel Kim, we are
positive on the DRAM sector in CY2011. We remain convinced that the midterm
risk-reward profile is turning favorable for the industry, as well as DRAM
chipmakers, as the industry is at an inflection point in the cycle. In Taiwan, we
recommend investors accumulate Inotera shares, especially after the recent
correction. Regionally, we have also Outperform ratings on Samsung, Hynix
and Elpida.