Inventory up, demand down, DRAM buyers' delight
EE Times
(11/03/2005 10:35 AM EST)
The following column was provided by Nam Hyung Kim, a principal analyst with iSuppli Corp., an El Segundo, California-based market research firm.
Lingering excess inventories are pressuring DRAM prices, prompting iSuppli Corp. to change its rating of near-term DRAM market conditions to “negative,” down from “neutral” before.
Based on iSuppli’s latest inventory check, DRAM suppliers are carrying an average of more than four weeks of Double Data Rate 2 (DDR2) synchronous DRAM inventory, which is pressuring prices for the part. iSuppli warned the industry it had detected an increase in DDR2 inventory as long ago as July, when it upgraded its rating of near-term DRAM market conditions to neutral, up from negative before.
Pricing power in the DRAM market is being undercut by a lack of a technology transition. Newer-generation parts typically command a higher price, helping to boost DRAM average selling prices (ASPs). However, the crossover in market demand from DDR to DDR2 is not going to occur this year, iSuppli predicts, defying the expectations of many suppliers.
Because of this, those suppliers who had pushed for a faster DDR2 transition than their competitors saw their profitability impacted by the newer part’s combination of lower ASPs and higher manufacturing costs compared to DDR.
Samsung’s DRAM ASP during the third quarter declined by 3 percent, while the ASP for Micron Technology Inc. and Hynix Semiconductor Inc. increased by 3 percent and 8 percent respectively. Samsung also was impacted by the fact that it sells a relatively high percentage of its DDR2 SDRAM to OEMs, whose prices are lower than those found on the spot market.
Is there any near-term positive momentum in the industry?
Although iSuppli has downgraded its rating of market conditions, there are several mitigating factors that bear watching at this time.
First, DRAM suppliers now are trying to increase DDR volume due to weak DDR2 demand, resulting in an easing of the DDR2 inventory overage. Second, low-end motherboard shipments are increasing and the white-box PC market is recovering in Asia, also helping to draw down inventories.
Finally, suppliers’ conversion of production from DRAM to NAND flash memory will accelerate in the fourth quarter due to shrinking DRAM margins and explosive NAND demand. Samsung and Hynix, the two largest DRAM suppliers, already have announced that they will convert existing DRAM lines to NAND flash this quarter in order to catch up with customers’ NAND orders. This will reduce DRAM supply and boost pricing.
While these factors don’t impact iSuppli’s negative outlook at this time, they are positive drivers that are expected to bring encouraging developments in the market in the mid term.
In the meantime, iSuppli is issuing a fairly dire warning: Suppliers should go into survival mode as long as prices continue to decline. Market conditions appear rather gloomy in the fourth quarter. Furthermore, the DRAM market is expected to begin the first quarter of 2006 with a downturn.
During this period, DRAM will remain a buyers’ market. Nonetheless, buyers should keep in mind that they could be the victims of the “boomerang effect” later, when suppliers shift more production to NAND flash and away from DRAM, causing DRAM supply to tighten and prices to rise. However, iSuppli does not anticipate this will occur in the near term.
Nam Hyung Kim is a principal analyst with iSuppli Corp. Nam Hyung Kim can be contacted at: nkim@isuppli.com
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