Cryptocurrency slowdown throws cold water on DRAM market
The downfall of the cryptocurrency bubble has been astounding the market for DRAM chips in Japan and at other place which remained steady till now. The three pillars of the memory chip market are the demand from the manufacturers of smartphones, data centers and cryptocurrency miners. Though from among these pillars, one has been severely deteriorated and that is demand for DRAMs from virtual currency miners.
For the first time in two years, there is a fall in the DRAM prices due to the drooping growth from smartphone manufacturers which added to the descending pressure. One of the representatives at a Tokyo electronic parts trader said that in April there was a remarkable fall in the orders for DRAMs. He added that earlier they had many orders, also from those companies which had very less business with them and the demand from virtual currency miners was very strong.
In the cryptocurrency system, mining refers to the procedure of verifying transactions, where in order to decrypt a code, massive amount of data is being processed. Whoever solves the puzzle first is allowed to record the transaction on a blockchain which is a digital ledger and as a reward gets coins.
Mining needs fast number-crunching that is like DRAM chips packed into a computer component known as a video card. At the time when cryptocurrency was at the highest, miners may many times stockpile DRAMs so as to expand their computing power.
Demand for video cards also collapsed with the decline in the virtual currency mania. In Tokyo’s Akihabara electronics district, at a parts shop, the shelves were occupied by video cards. A clerk at Dospara, a computer equipment store in Akihabara said that till February, they received 10 calls daily that asked whether they had certain type of video cards in stock, but at present we are waiting for one such call in a week.
There was a silence among people by a great robbery from one of the Tokyo virtual currency exchange, Coincheck in January. A person at electronics parts said that businesses are not willing to put their hand in the cryptocurrency market.
The price of the DRAM chips received an extra boost from the coin miners prior to the theft. The price was already improving due to the heavy buying by the smartphone manufacturers and data centers, which were clambering in order to meet the growing demand for cloud services.
With the improvement in technology and manufacturers increasing production, the price of memory chips was likely to fall. In the spring of 2016, DRAM prices started to rise, as supply was not able to meet the demand. And in 2017, supplies became even tighter with increase in demand in the cryptocurrency mining business from individuals and companies. There was a good response from the miners to the increasing prices for cryptocurrencies like bitcoin.
In the fall of 2017, spot prices for DRAM that are sensitive at rise and fall in demand and supply started to increase abruptly. In comparison to three months before, in December 2017, Yardstick 4-gigabit DDR3 prices increased 20% to nearly $4 per unit. Majority prices for DRAM chips, which are paid by personal computer and parts manufacturers, were high above 20% in March from a year before, reaching $3.70.
Expectations that they represented a new market segment, was produced by the added demand from coin miners, as per a person at a DRAM maker. Though, such hopes were ruined within a period of six months.
At the moment, clear signs of destruction are being displayed by the demand for DRAMs for smartphones, because Apple incisions production of its new iPhone X and sales of China’s smartphone declines. In January-March quarter, the consignments of smartphone in China added up to 87.5 million units, low 16% on the year, as per U.S. market researcher IDC and this was the fourth straight quarter of annual downfalls. Consignments by China’s leading player Huawei Technologies increased 1.9%, whereas other makers like Oppo, lost momentum.
Simultaneously supplies of DRAM are growing. Two big producers, Samsung Electronics of South Korea and Micron Technology of the U.S. are producing more memory because more circuits are squeezed on chips. An official at some trading company said that their consignments are growing steadily.
For the first time in nine months, in March, large amount of DRAM prices stopped increasing. Buyers and sellers have started settling at lower prices. For the consignments of April-May and further, discussions on price setting has started and they seem to be headed lower. And as per IHS Markit, the price of DRAM consignments is anticipated highest in 2018.
In February, number of prices of NAND flash memory and the other main type of memory chip were already falling. Involving high-capacity chips available and declining smartphone sales, the standard prices are nearly 6% less in comparison to the beginning of 2018, at nearly $4.50 per unit.
Formerly this year, Samsung substituted some of its production lines from NAND to DRAM. In case, the prices of DRAM crack together with feeble NAND prices then the development of the semiconductor market may be undersized.
Memory production would slow down by price declines and because of that weighing on consignments of companies producing chipmaking equipment and silicon wafers. Such trends show the present semiconductor super cycle in which the whole industry develops, is reducing.
Good news for the DRAM market is that demand from data centers stay abrupt. Other good thing is investment in fifth-generation high-speed mobile communication technology. Commercial service for 5G is anticipated to be obtained next year at some places and may later on expand. Data traffic may rise by 5G, which will increase demand for memory.
In 2018 and later, IHS Markit estimates the world data center market will retain yearly growth of about 10%. The chief development driver in the DRAM market is demand from data centers, concealing it from smartphones and virtual currency miners.
Assistant director with market research specialist Techno Systems Research, Takahiko Komada, forecasts that the supply of DRAMs would stay tight till the end of 2018, restarting with price rises.
Though the normal view is that, this year memory demand will be the highest. In the telecom sector, number of chip buyers is shifting their capital investment forward in order to receive 5G service up and running very rapidly.
As a whole, in 2019 and afterwards, the demand is expected to become stable. And as supplies appear sufficient in future, the continuing price trend is expected to be weak.