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DRAM capex is down for some time - got it?
What are the implication of DRAM capex down in regards to supply going forward?
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DRAM prices, market on the up, says iSuppli
John Walko
EE Times Europe
(04/25/2008 6:09 AM EDT)
LONDON — Market research firm iSuppli suggests the worst may be over for suppliers of DRAMs and has upgraded its rating on the devices to "neutral" from the "negative" rating of November 2007.
"Although the DRAM suppliers themselves are still carrying more inventory than normal, stockpiles in the channel have been reduced significantly," said Nam Hyung Kim, chief analyst at iSuppli. "Furthermore, OEMs including the PC makers now are at optimal DRAM inventory levels, meaning their orders will increase during the critical third-quarter holiday build season."
The market research group suggests the average megabyte DRAM selling price has fallen by 17 percent in the first quarter of 2008, after a 31 percent decline in the fourth quarter of 2007. While still an above-average decline in the first quarter, the slower rate of decrease indicates the market now is bottoming out, iSuppli added.
Per-megabyte DRAM prices will rise by 2 percent during the second quarter, iSuppli projects.
The inventory/sales ratio for DRAM suppliers is put at about 0.7 to 0.8 , meaning that their stockpiles are equivalent to 70 to 80 percent of their sales This is far above the healthy range of 0.4 to 0.5.
DRAM suppliers early this year said they plan to cut their capital spending on production capacity by about 40 percent in 2008 compared to 2007. But Kin suggests that due to a lack of profitability and diminishing cash reserves over the past several months, many suppliers won't be able to afford spending even at such a reduced level, and may slash their capital outlays by an even greater margin this year.
This should cause capital spending for the industry as a whole to decline by more than 50 percent in 2008 compared to 2007, he suggests.
"With these capital spending cuts, DRAM megabyte shipment growth for the industry as a whole is expected to slow in 2008," Kim noted. "Originally, megabyte shipments were expected to rise by 61 percent in 2008, compared to an 89 percent rise in 2007. However, potentially reduced capital expenditures will lower iSuppli's previously estimated 61 percent increase to the mid-50-percent level this year. This will result in a more balanced supply/demand outlook in the second half of the year, stabilizing DRAM prices and profits."
One exception to this trend is the main DRAM supplier Samsung Electronics Co. Ltd., which is expected to increase its rate of megabyte production in 2008 by 87 percent compared to 86 percent in 2007.
Kim predicted DRAM market conditions will slowly improve starting in the second quarter of 2008.
"Nonetheless, the improved market conditions don't mean that suppliers can achieve profitability in the near term," Kim said.
The market researchers also said the troubled NAND market may be on the way up, with suggestions of a price rally in the spot memory market. However, the company cautions the fundamental underlying market conditions have not changed significantly and predicts the current spot market price rally will be short lived.
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