Asia DRAM Report: DRAM Mkt Heading Into Supply Shortage
By Dermot Doherty
OF DOW JONES NEWSWIRES
TAIPEI (Dow Jones)--Spot prices of dynamic random access memory chips extended recent hefty gains over the past week, amid a growing consensus that the severe supply glut in the sector may finally be over.
While the rally that kicked in during the fourth quarter may have begun with chipmakers deliberately reining in supply to the spot market in a bid to nudge prices higher, increasingly it appears to be also evolving into a fundamentally driven rebound, some industry experts say.
"The fact that memory content per PC has risen so quickly means we're reaching a balance between supply and demand," said Jonathan Ross, head of regional technology research at Goldman Sachs in Hong Kong, estimating that demand could even be outpacing supply by as much as 14%.
Memory content per PC has climbed from 90-95 megabytes at the end of 2000 to more than 220MB at present, and megabit shipments roughly doubled between April and October last year amid low DRAM pricing, the launch of the Windows XP operating system and the growing prevalence of Intel Corp (Singapore: INTC.SI - news).'s (INTC) Pentium 4 microprocessor, he said.
The sharp surge in memory content per PC has also helped to whittle down the large stockpiles of inventory that built up during last year's industry downturn. Ross said many DRAM manufacturers are now holding around two to three weeks of inventory. During last year's supply glut, many chipmakers were holding around eight weeks of inventory.
Analysts and market players have been in broad agreement for some time that inventories were being digested and that supply was shrinking as vendors were no longer offloading products in large amounts into the spot market and as they made the transition to other products.
Still, the equilibrium in supply and demand that the sector appears to have reached is far ahead of previous bearish market estimates, which had put a DRAM shortage as far away as the fourth quarter of 2002.
Some analysts and brokers have also attributed the run-up in DRAM pricing to expectations that capacity could be cut if talks between Micron Technology Inc. (MU) of the U.S. and Hynix Semiconductor Inc. result in a deal between the two chipmakers.
The spot price of a 128-megabit DRAM chip has risen to US$3.80 from around US$3.00 a week ago, from lows of just under US$1.00 reached in late October, putting it into money-making territory for the first time in more than half a year. For many chipmakers, it costs around US$3.50 to manufacture a chip.
One spot market player said he expects 128Mb prices to rise to US$4.00 before long, though others say consolidation could soon set in, given the magnitude of recent gains.
Some industry experts also warn that the price gains could crimp shipments as cost-sensitive PC makers lower memory content per PC, while others argue the higher prices could be offset by falling microprocessor costs stemming from technology improvements.
Hopes For Corporate PC Upgrades
Joe Dutton, semiconductor analyst at UBS Warburg in Seoul, concurs that there is already a slight shortage of DRAM, with demand outpacing supply by perhaps a couple of percent.
"Prices reached a level last year where it didn't make sense to produce, and in the second half you also had less DRAM output from foundry players," Dutton said. In addition, there was "a better-than-expected seasonal improvement in PC demand in the fourth quarter, a big uptick in average memory per PC, and you also had strong demand from the game console sector."
Dutton said some of the current demand for DRAM chips has been inflated by inventory buildup at DRAM brokers and PC original equipment manufacturers with the introduction of new Pentium 4 PC models.
Still, he remains upbeat about the prospects for healthy PC shipments in the first quarter, while the sector will likely witness strong growth during the second half of the year.
"Now that Intel has launched its DDR chipset, you have a catalyst for corporates to upgrade," he said, while noting that much will hinge on the macro-economic situation.
Last week, Intel, the world's largest semiconductor maker, rolled out a long-awaited chipset that allows its Pentium 4 microprocessors to function with high-performance Double-Data Rate memory chips.
Spot market players themselves say demand is only moderate and the real driver of the recent uptick in pricing has been tightening supply.
"Demand isn't great, but the amount of product being released into the market isn't that large because chipmakers are controlling supply," said one executive at a module maker in Taiwan. However, "inventory levels aren't really increasing either because they're shifting (production lines over) to 256Mb and DDR chips."
Most market watchers say further gains are likely in store given the sharp improvement in fundamentals, though some argue that could be dependent on stability in DDR prices in coming months. While Intel's new chipset is expected to buoy demand for the new memory standard, supply should also grow sharply in 2002 and the transition could lead to some volatility in DDR pricing.
"A lot could depend on DDR prices," said an executive at a module maker in Taiwan. "If DDR prices continue to rise with the new Intel chipset coming onto the market, prices of synchronous DRAM will also rise."
Table Of Recent DRAM Spot Prices
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14 Jan 7 Jan 31 Dec 24 Dec 17 Dec
64Mb SDRAM - $1.52 $1.32 $0.96 $0.87 $0.84
128Mb SDRAM - $3.80 $3.00 $2.52 $1.93 $1.90
256Mb SDRAM - $7.00 $5.30 $4.74 $3.62 $3.68
128Mb DDR - $3.98 $3.55 $3.52 $3.35 $3.42
128MB Rambus* - $40.30 $36.00 $35.80 $36.20 $36.70
*module price
Sources - brokers, module makers, DRAMExchange |
