Is this a warning bell?? Kind of reminds me of 1995.
Buyers benefit as DRAM prices head south
By Jack Robertson Electronic Buyers' News (02/25/00, 04:38:12 PM EDT)
Hold on tight: DRAM prices are plummeting again.
A survey of aftermarket resellers indicates that spot-market prices are threatening to crash through the $4 level, bringing glad tidings to OEM buyers and countervailing grief and potential financial misfortune to DRAM suppliers.Mainstay 8X8 PC100 64-Mbit SDRAMs were listing on the spot market for as little as $4.50 this week, with no end to the free fall in sight, according to observers. OEM contract prices took a dive as well, although 64-Mbit PC100 parts have generally not dipped much below $6, sources said.
In a scene all too familiar to the industry's memory-IC vendors, the trend could eventually carry DRAM prices below manufacturing costs, according to Victor de Dios, an analyst at de Dios & Associates, Newark, Calif.
"There's just too much inventory in the channel that must be burned off before prices bottom out," de Dios said. "The major DRAM manufacturers have reduced their production costs to under $4 [for 64-Mbit SDRAMs]. That's where they'll hit their pain threshold and [will] have to cut production to stop the pricing free fall."
A spokeswoman for Micron Technology Inc., Boise, Idaho, said the memory-chip maker "is cautious right now" in its assessment of the DRAM market. "We don't have enough data yet to judge how long the downturn will continue and when prices will turn around," she said.
Bob Eminian, vice president of marketing at Samsung Semiconductor Inc., San Jose, said the company is sitting on less than two weeks of inventory, but warned that some DRAM makers "have four to six weeks of inventory on hand. We won't see any turnaround until that inventory is depleted."
Eminian estimated that it will take until the second quarter before some balance is restored to the supply/demand equation.
Observers pointed to several factors flattening DRAM prices just months after OEM buyers were spending more than $20 for 64-Mbit chips on the spot market.
For de Dios, the reason for the collapse is obvious: "There's no big demand, and supply continues to escalate. "The scarcity of [Intel] processors caused the white-box PC manufacturers to ship fewer units than they planned," reducing their demand for DRAM, de Dios added. However, he believes major PC OEMs were able to get the processor supply they needed from Intel, with their slackened DRAM orders a result of the traditional first-half PC slowdown.
Some contend OEMs are disposing of large excess stocks that accumulated when Y2K supply disruptions failed to materialize. Jonathan Joseph, an analyst at Salomon Smith Barney Inc., San Francisco, added that DRAM demand increased in 1998 and early 1999 when PC makers doubled the amount of memory shipping in their low-end systems from 32 to 64 Mbytes. With another doubling in the large, low-cost market unlikely in the near future, DRAM demand has fallen into a trough, he said.
Whatever the root cause, Joseph said DRAM bit growth is continuing to slow in the global market. Citing Semiconductor Industry Association figures, he noted that bit consumption in the fourth quarter of 1999 was up only 39% year-over-year, less than half the eight-year average of 81%.
The SIA refused to release fourth-quarter figures for DRAM bit consumption, but said growth for the year increased by 76%. However, Salomon Smith Barney analyst Scott Decker said growth slowed significantly in the second half of 1999 in what he called "a disturbing trend."
SIA figures furnished by Salomon Smith Barney appear to bear this out. DRAM bit consumption in the first half of 1999 averaged 86%, but tailed off to 51.5% in the remaining two quarters. This compares with 1998, when growth in the first half of the year averaged 74%, but then jumped to 95% in the second half.
Despite what they believe will be soft demand early this year, most analysts and DRAM executives expect seasonal factors to cause bit growth to rebound in the second half, when the PC industry ramps up for back-to-school and holiday sales.
Plummeting DRAM prices may set up the next big boost in PC-memory density as OEMs are once again enticed by low chip costs into raising the DRAM content of their sub-$1,000 PCs to 128 Mbytes.
"There's a self-correcting action here," Eminian said. "And once PC memory [size] moves to a higher level, it tends to stay there." |
