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Technology Stocks : Applied Materials No-Politics Thread (AMAT) -- Ignore unavailable to you. Want to Upgrade?

To: Sarmad Y. Hermiz who wrote (1545)	7/16/2002 2:29:10 PM
From: Proud_Infidel	Read Replies (1) \| Respond to of 25522

Closer Look: Spot DRAM prices don't tell the whole story By Jack Robertson EBN (07/16/02 11:54 a.m. EST) Alarmist press reports have spread the word for several weeks that DRAM prices are skyrocketing. But take another look. Virtually all of the price hike data is coming from spot market reports. And indeed DRAM spot prices have been shooting up, according to commodity exchanges. But OEM contract prices -- which comprise 80%-to-90% of all DRAM sales -- have remained relatively stable for the last several weeks. Indeed, ICIS-LOR, London-based tracking service, reported that 256-Megabit DRAM prices declined 3.9%-to-4% in Europe and Asia in a 30-day average in June. Sherry Garber, analyst with Semico Research Inc., Phoenix, put the OEM price drop of 256-Mbit in June at an even steeper 17%. Just this week, however, reports from Korea indicated a small uptick in DDR contract prices. So what's happening here? For one thing, the spot market of late has become a notoriously poor indicator. Volume has dropped off sharply since the first of the year, as the predominate spot buyers, white box PC firms and speculators, have suddenly faced tough going. Brand name PC makers have cut their system pricetags so much that white box vendors no longer enjoyed a big competitive edge. With lower levels of sales, the spot arena turned highly volatile. A little activity could suddenly send prices moving wildly, one direction or the other. But spot prices are easily tracked from the many exchanges and brokers issuing daily, and sometimes hourly, reports. By contrast, OEM prices are not very open and difficult for most outsiders to track. So it is the headline-grabbing spot price swings that grab lots of headlines. Presumably, OEMs, who negotiate their own DRAM contracts for far more product, aren't taken in by the erratic spot market behavior. Only when total DRAM supply gets tight or conversely when the spot market is flooded with memory chips and prices are plummeting, do OEMs take an interest. The reality seems to be that DRAM vendors cranked up 256-Mbit production, pumping out more chips than current OEM demand. This caused 256-Mbit prices to decline, even while 128-Mbit OEM prices were stable to slightly higher and the spot market showed big increases. Now DRAM producers, who have gotten their own inventories generally under control, aren't using the spot market as a dumping ground for excess stock. Most memory firms said they are now selling only a minimal amount of product into the spot market. Nor are OEMs and supply chain enterprises throwing excess DRAM inventories into the spot channels. Neither are they tapping the price-gyrating spot market for big orders, because so far they can get all the supply they need with their own contracts direct with DRAM producers. All this could change in the blink of an eye. If the big second half pickup doesn't materialize as hoped, escalating producer and OEM stocks could flood the spot market, again making it a key player. At the opposite extreme, a bigger second half than forecast could once again send memory customers scrambling to the spot market to get chips at rapidly soaring prices. So what else is new?