Memory Bulletin: DRAM market goes slow-mo
Nam Hyung Kim
Silicon Strategies
11/23/2004, 6:21 AM ET
The following column was provided by Nam Hyung Kim, a principal analyst with iSuppli Corp., an El Segundo, California-based market research firm.
DRAM spot market prices continued their across-the-board declines last week due to sluggish demand from Asia.
In the U.S. spot memory market, pricing for 256-Mbit Double Data Rate 400 (DDR400) SDRAM fell by 3 percent last week. This marked the third consecutive week of price declines for the popular part.
Despite this, DRAM sales to PC OEMs appear to be following normal seasonal patterns, although the level of demand is not notably strong this year. As spot prices fall, system manufacturers and distributors are delaying purchasing decisions until they gain greater visibility of Christmas demand.
With DRAM prices decreasing, it is natural for purchasers to adopt more conservative buying patterns. This has resulted in an oversupply of DRAM on the market. Although iSuppli is taking a neutral stance on present conditions, the pricing situation is growing increasingly negative, from the DRAM vendors' point of view.
Spot-market prices for 256-Mbit DDR could decrease to less than $4 in the near term, iSuppli believes. While OEM contract prices are expected to remain stable in November, the situation will change after the end of the month. December tends to be one of the slowest months of the year for DRAM sales.
This will cause DRAM sales to decline further.
The first quarter of 2005 will not bring any relief, with the present oversupply situation expected to continue.
In a departure from recent years, DRAM demand from China has been very weak during the present holiday season. This weak demand is sending a warning signal to the market that demand associated with the upcoming Chinese New Year in February won't be as strong as it has been in the past.
In the meantime, suppliers and analysts are engaging in a debate regarding the DRAM market outlook for 2005. While the uncontroversial consensus is that DRAM prices will decline in 2005, the disagreement is over the magnitude of the decrease.
So how far will prices fall next year?
iSuppli expects that the 256-Mbit-equivalent average selling price (ASP) will decline to $3.90 in 2005, down from an average of $5.50 this year — a 29 percent decline.
In the case of 256-Mbit DDR, iSuppli expects that the ASP will decline to $3.00 in 2005. However, even at the $2.50 to $3.00 level, some DRAM suppliers will still manage to make a profit next year, because their manufacturing costs have been dropping drastically in 2004 as they migrate to more advanced manufacturing processes.
PC OEMs have been able to afford, accept and absorb higher-than-expected DRAM prices in 2004 due to lower costs for other key PC components, particularly TFT-LCDs. This, in effect, transferred profits from the LCD suppliers to the DRAM suppliers.
However, conditions will change in 2005, placing greater pressure on DRAM makers to improve their cost competitiveness.
Nam Hyung Kim is a principal analyst with iSuppli Corp. Nam Hyung Kim can be contacted at: nkim@isuppli.com |
