Flurry of purchasing activity sets DRAM spot market buzzing
By Jack Robertson
Electronic Buyers' News
(09/10/99, 04:46:33 PM EDT)
In a frenzied week for the DRAM spot market, panic buying sent commodity 64-Mbit SDRAM tags as high as $12.50-nearly three times the pricing level of only eight weeks ago.
At the same time, an oversupply of 128-Mbit SDRAM sent prices plumbing new depths, in some cases inching below $15 to settle just above their lower-density counterparts.
The 64-Mbit buying spree is driving a wedge between spot tags and OEM contract prices, the latter of which moved up slightly to about $6.50, creating a disparity that buyers and sellers alike described as highly unusual.
Ron Bechtold, vice president of the DRAM division at Hitachi Semiconductor (America) Inc., San Jose, attributed surging prices to buyers who had grown accustomed to using commodity channels while DRAM supplies were plentiful, but who then became nervous when a firmer market dried up the spot surplus.
“Spot buyers panicked [this] week,” said Michael Hassan, general manager of Dana-Elec Inc., an Irvine, Calif., module maker. “When offices opened Tuesday morning after the Labor Day holiday, the price of 8-Mbit ¥ 8 64-Mbit SDRAM had jumped from $9.50 to $11.50 from close of business the previous Friday. It just went up from there.”
OEM contract buyers fared much better as newly negotiated prices climbed a relatively modest 50 to 75 cents, according to observers. “Big OEMs and their [DRAM] suppliers have long-term relations,” Bechtold said. “Manufacturers have been meeting their [delivery] commitments on OEM contracts.”
Some executives said the rapidly consolidating cadre of top-tier DRAM suppliers is now fulfilling almost all OEM orders, a shift that has evaporated the inventory overhang that fuels the spot market.
What happens next is anyone's guess.
A.A. LaFountain, an analyst at Needham & Co., New York, said the tightening supply of commodity 8-Mbit ¥ 8 SDRAM could continue as manufacturers shift their product mix to the higher-margin 16-Mbit ¥ 4 and 32-Mbit ¥ 2 SDRAM configurations required by the booming server market.
“The commodity SDRAM supply could remain short during the upcoming holiday season when PC sales peak,” LaFountain said, adding that demand could tail off in the first quarter as the market experiences its traditional early-year slump.
That could prove troublesome for DRAM makers that are slow on the uptake. Vendors using the recent price spurts as a rationale for increasing 8-Mbit ¥ 8 PC100 SDRAM output could find their revved-up supplies hitting the street just as the market takes a post-holiday breather, analysts warned.
A few observers believe the recent price spike resulted from the DRAM industry's conversion from SDRAM to Direct Rambus DRAM, although that speculation was widely dismissed. Avo Kanadjian, senior vice president of memory marketing for Samsung Semiconductor Inc., San Jose, said his company was able to ramp up production of Direct RDRAM and SDRAM chips in parallel. He attributed the tighter DRAM memory to a jump in demand.
“There was a major impact when value [sub-$1,000] PCs suddenly moved from 32 Mbytes to 64 Mbytes [of main] memory,” Kanadjian said.
However, Hitachi's Bechtold fears that if commodity SDRAM prices continue to rise, low-cost PC makers “might de-populate the memory back to 32 Mbytes. There is so little margin on these PCs that OEMs can't afford high memory costs,” he said.
Stephen Marlow, vice president of memory operations for the Semiconductor Group of Toshiba America Electronic Components Inc., Irvine, said some of the SDRAM price increase is due to lower yields as producers shift to next-generation 0.18-micron manufacturing processes.
Marlow added that some 64-Mbit production was lost when a number of suppliers, including Toshiba, began shifting output from commodity 64-Mbit DRAMs to the 128-Mbit generation.
Some DRAM executives blamed this move for the rapid drop in 128-Mbit prices. Alexander Everke, vice president of memory marketing and sales for Infineon Technologies AG, Munich, Germany, said too many DRAM makers were hasty in rushing into 128-Mbit chips to boost their margins via a denser architecture. “The demand was not as big as planned,” Everke said. “One of the big potential 128-Mbit markets is servers, but modules for servers are still predominately using 64-Mbit SDRAMs.”
That has left 128-Mbit SDRAM in oversupply, driving the price down at the very time 64-Mbit tags are shooting up. In some instances, 128-Mbit configurations hit new lows of $14.65 to $15.97 late last week.
At those prices, Dana-Elec said it could conceivably replace its 64-Mbit chips with half the number of 128-Mbit devices, cutting the cost of a 256-Mbyte DIMM by as much as $200. Still, many analysts don't foresee a wholesale switch to modules using 128-Mbit SDRAM because the chips, while in comparative oversupply, remain in limited production overall.
A possible effect that bears watching is the fluctuating premium between SDRAM and costlier Direct RDRAM, which could narrow if SDRAM prices continue skyward. Subodh Toprani, vice president and general manager of the logic products division at Rambus Inc., Mountain View, Calif., claims higher SDRAM tags could help speed the transition to Direct Rambus.
However, Bechtold cautioned that suppliers could behave in a quite contrary manner. “With higher SDRAM prices, manufacturers will be motivated to put as much production as possible into a chip that's now giving a good return,” he said. “They might be less inclined to divert production from SDRAMS to make the riskier Direct Rambus.”
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