DRAM demand exhausting second quarter supplies
Rising prices could slow switch to Direct Rambus
By Jack Robertson
Electronic Buyers' News
(05/05/00, 08:00:29 PM EST)
The DRAM market pendulum is well into its long swing back to the point of tight supply, as memory chip makers said this week they are sold out of mainstay SDRAM chips -- and warned that shortages will widen in the third quarter.
Polled by EBN, executives at Hitachi, Hyundai MicroElectronics, Micron Technology, and Samsung said they can take no further SDRAM orders for the rest of the second quarter.
?We are sold out, and our customers are rushing to lock up SDRAM deliveries for the third quarter when shortages are likely to be worse,? said Farhad Tabrizi, vice president of worldwide strategic marketing at Hyundai Electronics America, San Jose.
According to a report released by Semico Research Corp., Phoenix, prices this month will rise 1% to 2% from April, after falling as much as 5% since January. Sherry Garber, a Semico analyst, said the increase speaks to a growing shortage looming in the second half of 2000, a year when DRAM suppliers are expected to reap a 47.5% revenue increase, to $30.6 billion.
?Depending on how steep the shortages are in the second half, revenues might even be better for DRAM suppliers,? Garber said.
Spot and OEM contract markets have inched up, although so far without the wild price spikes of last fall. At the end of last week, American IC Exchange, Aliso Viejo, Calif., reported mainstream 8x8 64-Mbit SDRAMs had risen slightly from $6.35 to $6.65. Analysts said OEM pricing for the same SDRAMs was about $6.25.
Older-generation 64-Mbit EDO memory chips were selling at a 3x premium over SDRAMs in the spot market, at $16. As major DRAM makers drop EDO lines, the available supply has become critical, causing the few remaining vendors making the part to raise their prices.
Dataquest Inc., San Jose, agreed that a second-half supply/demand balance could swing in favor of vendors, noting that except for a number of market aberrations, the price per Mbyte of SDRAM has remained virtually stable since May 1999. But exactly when OEMs must brace themselves most firmly for the impending shortage is a tough call, said Dataquest analyst Jim Handy.
?We've been saying for a long time that in the second half, we were expecting to see a supply/ demand balance, and it could happen earlier,? Handy said. ?What we're trying to forecast is the intersection of two nearly parallel lines.?
While the majority of OEMs are using SDRAM in their computing platforms and communications equipment, those hoping to grab hold of emerging technologies such as double-data-rate SDRAM and Direct Rambus DRAM may face even more of a wait than they bargained for. The return to tight supply is expected to have a particularly hard impact on the ramp of Direct RDRAM, as memory producers have grown reluctant to divert significant output from suddenly lucrative SDRAM production.
Bob Eminian, vice president of marketing at Samsung Semiconductor Inc., San Jose, the only major supplier of Direct RDRAM to computer OEMs, summed up the industry's dilemma: ?Since Rambus is made on the same production lines as SDRAM, any further shift to Direct Rambus will only make the SDRAM shortage worse.?
Bad as the SDRAM supply situation is getting for mainstream consumers, the shortage could throw a wrench into the plans of Intel Corp. and Rambus Inc. to ramp Direct RDRAM production sharply in the second half. Semico's Garber agreed that memory vendors are loath to trade SDRAM production for Direct RDRAM, where initial yields are likely to be low.
Samsung estimated Direct RDRAM could constitute 20% of its total DRAM shipments this year. Analysts noted that as the only vendor shipping Rambus in quantity to the computer market, Samsung is enjoying high margins, which it wants to maintain. Indeed, Eminian said Samsung has yet to substantially lower its Direct RDRAM RIMM module prices since it began volume shipments last November.
Avo Kanadjian, vice president of marketing at Rambus, Mountain View, Calif., said Direct RDRAM prices will come down sharply this fall as more suppliers ramp production. Module manufacturer Kingston Technology Co., Fountain Valley, Calif., cut its RIMM prices an average of 35% last month, although the modules are still three to four times the price of a comparably sized SDRAM module, according to Garber.
Other suppliers said it is not clear how much Rambus production they will ramp this fall. ?We'll deliver whatever our customers want,? said Jeff Mailloux, DRAM marketing manager at Micron Technology Inc., Boise, Idaho. ?Right now, we're talking with OEMs about their DRAM requirements for the third quarter, and we're getting mixed signals on their demand for Direct Rambus.?
Ron Bechtold, vice president of Hitachi Semiconductor (America) Inc.'s DRAM division in San Jose, said DDR chips could be cushioned from the same issues facing Rambus, given that the interface is manufactured in much the same way as SDRAM. ?We can wait very late in the production cycle to determine whether the wafer will be used for [single-data-rate] SDRAM or DDR -- much closer to actual market demand,? Bechtold said.
Hitachi's quandary, ironically, is how much production capacity to allocate to trailing-edge EDO DRAM in the face of mounting SDRAM shortages. Bechtold said that as one of the few suppliers still making EDO, Hitachi is enjoying high margins on the older memory, which is still being used by many OEMs.
?But you want to plan EDO production very carefully,? he said. ?You don't want the market to suddenly disappear and be left with a lot of inventory you can't sell.?
The third-quarter fate of Direct Rambus is being set now in a multitude of memory-supply negotiations between vendors and OEMs. It takes memory makers three months from wafer start to finished chip, which means producers are allocating their DRAM production now for chips that will come to market in the third quarter.
Mailloux expressed a sentiment echoed by a number of other top-tier DRAM producers considering how much of their precious capacity to allocate to Direct RDRAM.
?Rambus isn't going to enter the mainstream market until its large price differential over SDRAMs is drastically reduced,? he said. ?Because the majority of PC OEMs want to buy the cheapest memory possible, Rambus is going to have to cut the differential with SDRAM to nearly zero.?
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