DRAM Inventories Dwindle At PC OEMs
By Steven Fyffe, Electronic News
Mar 23, 2001 --- DRAM stockpiles at PC manufacturers have finally shrunk since last year’s Christmas season buying spree swamped the memory market. But communications companies and the channels that feed them are still clogged with parts due to overly optimistic forecasts from some of the biggest names in the industry.
“Currently, it appears that this excess inventory situation at (PC) OEMs has corrected itself, and at last Micron and other semiconductor memory manufacturers are back in the mode of supporting true demand with ex-factory shipments,” said Mike Sadler, vice president of the Networking and Communications Group at Micron Technology Inc., in a conference call with analysts this week. “This is good news.”
The financial community greeted the news with cautious optimism.
“It’s the first good news since November or October,” said Dan Scovel, semiconductor analyst at Needham & Co., New York. “We’ve stabilized about half an inch above the gutter, but we have still stabilized.”
Yet the encouraging signs on the horizon could just be a mirage, warned Carl Richter, an analyst at Lehman Brothers, New York. “It’s not clear that it’s really positive. There (are) a number of reasons why this can be a false indicator.”
But the PC inventory flush bodes well for a DRAM rebound in the second half of the year, argued Victor de Dios, principal analyst at De Dios & Associates, Newark, Calif. “I think we should expect some rebound,” de Dios said. “Although things are still looking very gloomy for the rest of the year, that’s more from a lack of visibility, rather than fact.”
On the flip-side of the good news-bad news coin are the continuing inventory woes of the communications equipment sector.
“The not-so-good news is that this memory component inventory situation…has spread well beyond the computing space,” Micron’s Sadler said. “In contrast to the PC integrators, the inventory buildup at the network and communications (end) was unintentional. It was the result of demands not materializing to the extent expected.”
While the unwanted inventory buildup appears to be an industry-wide problem, San Jose-based Cisco Systems Inc. (nasdaq: CSCO), as one of the highest-profile victims, has been singled out. “The problems at Cisco have been advertised quite a lot, and we can confirm that they are true,” said Mueez-Ud Deen, director of DRAM and graphics memory marketing at Samsung Semiconductor Inc., the U.S. subsidiary of Samsung Electronics Co. Ltd., Seoul, South Korea. “They overshot their demand and I don’t think that correction will be finished for sometime.”
Samsung estimates it will take Cisco five months to work off the excess DRAM it has built up, said Ygongho Kang, associate director of DRAM at Samsung. Cisco admits it overestimated demand. “Our inventory level had gotten higher than we had wanted it, and it will be a couple of quarters before it reaches a more acceptable level,” a Cisco spokesman said.
Communications companies are still learning the tricks of the trade that seasoned PC companies now take for granted, said Jamie Stitt, DRAM business development director at Toshiba America Electronic Components Inc. (TAEC), Irvine, Calif. “The communications segment is probably at the beginning of the learning curve regarding this,” Stitt said. “From a DRAM perspective, they are the ones facing greater challenges that the buyers in the PC industry that have established routines. They don’t have the same knowledge of a hardened PC company buyer. Some of these companies have grown far too quickly without any infrastructure in place to manage their operational side well. Now they are paying the price, or their subcontractors are paying the price.”
Meanwhile, PC manufacturers are close to finishing their inventory correction, Samsung’s Kang said. “What we heard for the PC OEMs is that they will finish their inventories by April,” Kang said. “They used January and February to adjust their total inventory.”
Industry veterans had mixed feelings about the current market environment, despite the fact that DRAM prices seem to have stabilized and orders are being placed again. Some were upbeat. “It looks like we are starting to see a little upside opportunity,” said Gary Swanson, senior vice president and general manager of the semiconductor division, Hyundai Electronics America, San Jose.
Others were glad their customers were no longer asking for discounts.
“It feels like it has bottomed out,” said Samsung’s Deen. “The continuous price negotiations have slowed down. We believe that inventories at our customers have been reduced to the point that they are getting ready to buy for new demand.”
And others said the current stability could be short-lived.
“I haven’t seen any real indicators that say anything has really changed,” said Jim Sogas, vice president of marketing at Elpida Memory Inc., Tokyo. “I’m not seeing across the board step functions in demand. We are still seeing general softness in the overall computing market.”
Even Boise, Idaho-based Micron (nyse: MU) showed limited enthusiasm. “I wouldn’t get too excited about it,” said Jeff Mailloux, director of DRAM marketing at Micron. “There are some signs that it’s starting to look like things are improving, but I’m not convinced of that.”
“It’s hard to read right now, because our customers’ end businesses aren’t doing too well. I would say it has stopped getting worse. That is as positive as I would get.” |
