Impact?????........
DRAM prices still melting
By Crista Souza
Electronic Buyers' News
(11/12/00, 09:47:44 AM EDT)
SAN JOSE -- Mainstream SDRAM prices this past week plummeted to their
lowest point ever amid concern that the holidays won't generate enough PC sales
to dry up inventory that has flooded the spot market for months.
While that may be good news for OEMs, for memory makers
it's meant a return to the days of selling chips at or below
production cost. Yet DRAM producers took the price plunge in
stride, saying the excess has been flushed out and
first-quarter orders look strong.
Market watchers, however, were less optimistic for a quick recovery.
"Conditions in the market today do not warrant the pricing we're seeing," said
analyst Victor Dedios of deDios & Associates, Newark, Calif. "That makes the first
quarter a little suspect. Even if prices hit bottom soon, depending on how demand
behaves, pricing might bounce back, or we could see some forced supply
constraints."
The problem can be traced back to the beginning of the year, when an expected
shortage of SDRAM scared OEMs into hoarding inventory, according to analyst
Jim Handy of Dataquest Inc. in San Jose.
"What we believe is going on is that OEMs bought inventory in Q1 because
everyone, including us, was telling them the PC market would be hotter than it
turned out to be," Handy said.
Dataquest's earlier forecast of an 18.2% increase in PC units has since been
revised to 17.5%, still well above the industry's average 15% growth. But the
change was enough to turn panic buying into panic dumping. And since the typical
back-to-school PC market never materialized, surplus memory chips have
languished on the spot market.
"The trouble is, with low demand, there's been nowhere for inventory to go," Handy
said.
This week, workhorse PC-133 8x8 64-Mbit chips plunged below $3.50 on Asian
spot markets, and $3.85 on U.S. commodity markets, while PC-100 8x16
128-Mbit fell to $9.80. Contract OEM pricing followed the commodity market lower,
reportedly dropping to about $5 for 8x8 64-Mbits, and below $11 for 128-Mbit
SDRAMs.
Only a month ago, 8x8 PC-133 SDRAMs were selling for $5.50 and 8x16 PC-100s
were at $15.50 in spot markets, according to American IC Exchange in Aliso
Viejo, Calif., and NECX in Peabody, Mass. That marks a 36% price fall in the past
30 days for both types of mainstream memory.
With first-quarter shipments historically slower than fourth-quarter, oversupply
could be compounded come January, Handy warned, though memory makers
doubt the situation will worsen.
Dataquest is moving its projection for a long-anticipated DRAM shortage out to the
second quarter of 2001, a far cry from its original thinking that the industry would
already be in the grip of a shortage, said analyst Handy.
Some industry executives said they believed pricing bottomed out this past week,
and said they are girding for a shortage of the memory chips by early next year.
According to Farhad Tabrizi, vice president of strategic marketing and product
planning for Hyundai MicroElectronics' DRAM business unit in San Jose, DRAM
bit growth is still far exceeding supply. Bit demand is on a pace to grow nearly
75% this year, compared to the 50% forecasted growth in bit supply.
"If bit demand [in 2001] grows any more than 50%, there will be a definite lack of
DRAM to meet the demand," Tabrizi said, adding that a dearth of new fabs will
contribute to a shortage of the memory chips next year.
Meanwhile, industry executives believe excess OEM and channel inventory has
been burned off.
"The inventory correction, which really drove the price reduction, has been taken
out of the equation," said Jamie Stitt, director of business development for DRAM
at Toshiba America Electronic Components in Irvine, Calif. "I don't see any reason
why the typical supply-demand scenario should not now just take its course."
Some suppliers anticipate first-quarter PC purchases, particularly among
corporate users, will be uncharacteristically robust, though the reasons were
unclear.
"It's what we're hearing from PC makers," Stitt said. "We're still cautious regarding
the drivers."
Though no new software releases or "killer applications" loom that promise to
propel consumption of DRAM bits, Stitt suggested the increase in processor
speeds with Intel Corp.'s Pentium 4 roll-out could help spur demand. Additionally,
PC OEMs may take advantage of low DRAM tags to double the memory shipped
per box to 128 Mbytes, which will, in turn, create more demand, Tabrizi noted.
However, a shortage of processors for high-end servers and workstations may
temper corporate PC growth early in the year. Hitachi Semiconductor America
Inc., which primarily serves the high-end market, anticipates a flat first quarter for
DRAM, but company executives view the problem as short-term, said Jim Sogas,
director of Hitachi's DRAM business unit in San Jose.
"We're holding more inventory than we would have a couple months ago, but it's
not a bad number," Sogas said. "We anticipate things will pick back up in Q1."
Market uncertainty could have a harsher effect on Elpida, the DRAM joint venture
between Hitachi and NEC, which is slated to kick off on Jan. 1. The new company
will be exposed to the consumer PC segment, which had largely been blamed for
the inventory correction.
"Because we'll have larger production, if we see this turning into long-term
problem, we may have to adjust production," said Sogas, who will be vice
president of sales and marketing for the new DRAM entity. "Otherwise, we'll hold a
little more inventory."
--Additional reporting by Jack Robertson. |
