Uptrend in DRAM contract prices seen until Q4

DRAMeXchange reported that DRAM spot prices continued to decline last week as retailers and several module houses were still clearing out their inventory. However, demand is expected start to pick up again by the end of July and early August, as inventory levels stabilize.

Meanwhile, in the contract market, the DRAM DDR2 512Mbyte module price edged up by $1 to $2, a roughly 5 percent increase. Given that a few PC OEM makers place orders on a monthly basis during the peak seasonal sales, prices began to increase in the first half of July. Some DRAM makers have even further adjusted their prices above the $20 level—an indication that the oversupply situation has improved due to the approaching strong season.

DRAMeXchange predicts that should DRAM makers successfully transition to the 70nm manufacturing process to further lower their costs, they should be have a chance to turn in profits in Q3.

Q2 results, however, showed that DRAM makers have all incurred losses. DRAM foundry Inotera was the only maker that made profits in Q2. Based on the DRAM makers' financial reports, manufacturing costs in Q2 dropped roughly to $2.2 to $3.2.

DRAMeXchange said that with the current DRAM prices, some players should be able to break even this quarter. The market analyst also noted that the PC shipment peak should occur around October and November, with annual PC shipment growth expected to jump 12 percent y-on-y. In light of the usual strong PC shipments in Q4, the DRAM content per box is projected to go up significantly.

Switch to flash
Despite the plunge in DRAM prices, only Hynix has switched some of its production to flash. Taiwan makers can only rely on more mass production to lower their costs, as they do not have any flash products. In addition, ramp up of Taiwan's newer 12-inch fabs is scheduled to begin in Q4.

Meanwhile, as several retailers and module houses still have high inventory, they will decrease their losses by clearing out the excess chips during the hot selling season. All in all, the continued output increases and relatively high inventory levels of retailers may inhibit the momentum for prices to rise in 2H 2007. DRAMeXchange predicts the DDR2 512Mbit chip price to stay near $2.2 to $2.5, while DDR2 1Gbit to hover at the $4.5 to $5 level.