Cowen & Co.’s semiconductor analyst Timothy Arcuri today writes that pricing is set to rise for DRAM memory chips because the entire supply chain in Asia is being rocked by the rush to produce Apple’s (AAPL) iPhone 6.
That is leading to capacity constraints, which in turn may raise prices for DRAM for Samsung Electronics (005930KS) and Micron Technology (MU), two principal suppliers to the iPhone, even though the device itself won’t see a rise in DRAM content:
Our supply chain work in Asia suggests
PC DRAM pricing is tracking to a ~3-5% M/M increase in Sept, owing to
some pre-iPhone 6 launch supply constraints. While it is too early to
see actual supply impact from Samsung ramping DRAM in S3 – likely
starting CQ2:15 (we have long said 30k wsm is max it will ultimately
produce) – Samsung is back in the supply chain on iPhone 6 for DRAM (in
addition to MU via Elpida) after being excluded for iPhone 5/5S. So, we
believe Samsung’s production has vectored to a large degree from PC DRAM
to mobile DRAM; we feel this is unexpected by the market because
Samsung mobile DRAM capacity was already tight based to some degree on
captive smartphone demand. While this will help near-term pricing, we
don’t see significant DRAM content increase in iPhone 6 unlike NAND
where the SKU’s are likely to mix up from 64GB on high-end to now
include a 128GB high-end model for both 4.7″ and 5.5″.
Arcuri thinks SanDisk (SNDK) may be a prime beneficiary of the NAND increase mentioned.In the same report, Arcuri writes that a Chinese government investigation into Qualcomm (QCOM) “might come to a head in the near-term,” citing his examination of the matter and media reports. It may be Qualcomm takes a lower royalty rate, muses Arcuri, but “We feel that, even in a worst case where the NDRC would achieve lower royalty rates in China, QCOM would be better off to cede major swaths of royalties in China rather than jeopardize existing cash flows.”
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