Sold out: DRAM vendors place OEMs on allocation
By Jack Robertson
Electronic Buyers' News
(10/08/99, 06:27:25 PM EDT)
For the first time in recent memory, DRAM from most major vendors has been placed on allocation, a clear sign to customers that the four-year era of ample supply and swooning prices has for now drawn to a close.
Micron Technology Inc. last week broke the ice by uttering the "A" word, telling Wall Street investors that it is sold out of DRAM for the fourth quarter. And a number of other DRAM producers have placed OEM customers on allocation following the market's sudden U-turn from the oversupply situation that just this summer fed rivers of low-cost chips into the OEM channel.
Of the leading DRAM makers polled by EBN, only Samsung Electronics Co. Ltd., the largest global producer, shied away from claims of allocated supply.
Avo Kanadjian, senior vice president of memory marketing at the company's U.S. subsidiary, Samsung Semiconductor Inc., San Jose, said the sudden tight supply has spooked the market so much that using the term allocation "only can increase the panic." Kanadjian said the DRAM market is under pressure from so many conflicting factors that at present, "it is difficult to get a clear picture."
Nevertheless, during a conference call last week to financial analysts to report its quarterly earnings, Don Baldwin, vice president of Micron Technology, Boise, Idaho, said the company "is on allocation across the board on all its memory products¥128-Mbit and 64-Mbit DRAMs, flash, and SRAMs. We're forced to turn away a large amount of business, and most of the other DRAM manufacturers are doing the same."
As the shortage continues, contract OEM prices are rising and are now above $10 for mainstay 8 X 8 64-Mbit DRAMs, up from $9 just a week ago and $4.50 in July. Spot-market prices have gone out of sight, although they have begun to level off at $19 to $20 for those 64-Mbit configurations in highest demand.
Lisa Dreher, memory product manager at Kingston Technology Co., a Fountain Valley, Calif., module maker, said, "DRAM allocation is likely to be short-lived as manufacturers ramp to full capacity and complete die shrinks. However, looking ahead, we may see some real allocation in the DRAM market next year."
For PC OEMs used to stuffing their boxes with DRAM capacities that would have required a second mortgage during the pre-glut years, the lack of fourth-quarter availability represents a marked change, even if suppliers did serve some advance notice.
"We were warning our customers for two months that the industry would be on allocation in the fourth quarter because of demand rapidly closing the gap with supply," said Jamie Stitt, manager of DRAM marketing at Toshiba America Electronic Components Inc., Irvine, Calif. "We're not surprised, and expect allocations to continue into the first quarter of 2000."
Jim Sogas, director of business operations at the DRAM division of Hitachi Semiconductor (America) Inc. in San Jose, said the current DRAM shortage should continue for another month before the industry is in full allocation mode. "But regardless of what you call it, the OEM customers know they're now on allocation," he said. "Every DRAM product across the board is sold out."
Kanadjian said Samsung is feeling the supply pinch, especially because the Korean company is one of the few producers making almost every type of dynamic memory chip¥from 4-Mbit fast-page-mode all the way to 256-Mbit SDRAM. But he blamed a lot of the sudden tight supply on market panic and speculation. "If the market can return to more normal behavior, both customers and suppliers can get back more quickly to business as usual," he said.
Sources agreed that the quick surge in demand is compounded by double ordering, hoarding, and pre-emptive buying. But Toshiba's Stitt said buying extra DRAMs as a buffer inventory may not be possible. "Extra product simply isn't available," he asserted.
Will Mulhern, product marketing manager for advanced DRAMs at NEC Electronics Inc., Santa Clara, Calif., warned that customers will have to live within their negotiated DRAM delivery schedules, which suppliers believe they can still honor. "But right now we have no pool of extra DRAMs someplace in the channel that can be used to meet any quick new demand," Mulhern said.
Observers noted that, whatever the other underlying factors contributing to it, the current shortage was predictable given the low level of capital investment within the profit-starved industry.
"You could see the DRAM shortage coming," said Bill McClean, an analyst at IC Insights Inc., Scottsdale, Ariz. "Virtually [no] DRAM producer [has] added any new capacity for years. Eventually, the increase in chips coming from die shrinks would max out and continuing high demand would overtake a much slower increase in supply."
IC Insights calculates that chip makers this year will produce the lowest level of new wafer starts in a decade¥less than a 1% increase over 1998. "This is a far lower increase in new wafer starts than the industry had in the last period of DRAM glut in 1992," McClean said.
Chee Ho, marketing manager for memory products at Infineon Technologies AG's U.S. subsidiary in Cupertino, Calif., said DRAM makers are trying to meet the supply needs of their key customers as quickly as possible.
Chee observed, however, that no DRAM manufacturer has any excess product to meet demand from new customers or the spot market. McClean added that small accounts and the many module suppliers in the aftermarket are also having trouble getting DRAM.
"The spot market can't continue to be double the OEM contract price," said Hitachi's Sogas. But with virtually no spot- market chips to sell, there is no real pricing basis either, others conceded.
Some producers are concerned that chip demand could taper off as quickly as it shot up if component shortages triggered by last month's earthquake in Taiwan cause shipments from motherboard and PC assemblers to fall off.
"Like everyone else, we're trying to understand how much demand could be impacted because of any slowdown in Taiwan production," Samsung's Kanadjian said. |
