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iSuppli: Worst may be over for DRAM suppliers

Posted: 29 Apr 2008 ?? ?Print Version ?Bookmark and Share

Keywords:DRAM? market forecast? inventory glut?

Market research firm iSuppli Corp. suggests the worst may be over for suppliers of DRAMs and has upgraded its rating on the devices to "neutral" from the "negative" rating of November 2007.

"Although the DRAM suppliers themselves are still carrying more inventory than normal, stockpiles in the channel have been reduced significantly," said Nam Hyung Kim, chief analyst at iSuppli. "Furthermore, OEMs including the PC makers now are at optimal DRAM inventory levels, meaning their orders will increase during the critical third-quarter holiday build season."

The market research group suggests the average megabyte DRAM selling price has fallen by 17 percent in Q1 2008, after a 31 percent decline in Q4 2007. While still an above-average decline in Q1, the slower rate of decrease indicates the market now is bottoming out, iSuppli added.

Per-megabyte DRAM prices will rise by 2 percent in Q2, iSuppli projects.

Above healthy
The inventory/sales ratio for DRAM suppliers is put at about 0.7 to 0.8, meaning that their stockpiles are equivalent to 70 to 80 percent of their sales This is far above the healthy range of 0.4 to 0.5.

DRAM suppliers early this year said they plan to cut their capital spending on production capacity by about 40 percent in 2008 compared to 2007. But Kin suggests that due to a lack of profitability and diminishing cash reserves over the past several months, many suppliers won't be able to afford spending even at such a reduced level, and may slash their capital outlays by an even greater margin this year.

This should cause capital spending for the industry as a whole to decline by more than 50 percent in 2008 compared to 2007, he suggests.

"With these capital spending cuts, DRAM megabyte shipment growth for the industry as a whole is expected to slow in 2008," Kim noted. "Originally, megabyte shipments were expected to rise by 61 percent in 2008, compared to an 89 percent rise in 2007. However, potentially reduced capital expenditures will lower iSuppli's previously estimated 61 percent increase to the mid-50-percent level this year. This will result in a more balanced supply/demand outlook in the second half of the year, stabilizing DRAM prices and profits."

Trend defier
One exception to this trend is the main DRAM supplier Samsung Electronics Co. Ltd, which is expected to increase its rate of megabyte production in 2008 by 87 percent compared to 86 percent in 2007.

Kim predicted DRAM market conditions will slowly improve starting in Q2 2008.

"Nonetheless, the improved market conditions don't mean that suppliers can achieve profitability in the near term," Kim said.

The market researchers also said the troubled NAND market may be on the way up, with suggestions of a price rally in the spot memory market. However, the company cautions the fundamental underlying market conditions have not changed significantly and predicts the current spot market price rally will be short lived.

- John Walko
EE Times Europe





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