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DRAM market manifests new signs of weakness

Posted: 06 Aug 2008 ?? ?Print Version ?Bookmark and Share

Keywords:memory market? price? DRAM? storage? NAND flash?

With prices anticipated to decrease because of the bloated inventories, iSuppli Corp. said Q3 may be gloomy for the DRAM market worldwide as the renewed signs of weakness start to surface.

Few months back, iSuppli gave a good rating of near-term conditions for DRAM suppliers to 'neutral' from 'negative' as the market bottomed out and manufacturers' profitability improved during Q2. Even with continuous losses, a few top-tier suppliers managed to attain profitability starting in June and a handful are expected in Q3.

However, the market is showing renewed warning signs, with OEM contract prices for DRAM likely to decline in August and September. The main question now facing the industry is how much prices will decline during Q3.

"The average DRAM contract price is expected to slide by more than 10 percent from the current level by end of Q3," said Nam Hyung Kim, director and chief analyst, memory ICs, iSuppli. "The inventory level in the channel and among PC OEMs has increased compared to Q2. Global economic conditions add burden and result in more uncertainties on the demand side of the equation," he added.

Beyond targets
Looking at to the industry's challenges, DRAM shipments have gone higher that Q2 expectations, causing prices to decline in Q3. iSuppli's preliminary estimate is that DRAM unit shipments increased by 15 percent in Q2 compared to the first, which was much higher than the anticipated 10-percent increase.

"The unexpected increase in unit shipments in Q2 signals that excess-inventory is being shifted from the DRAM suppliers to the buyers," Kim noted. iSuppli still has a 'neutral' rating for DRAM market conditions for suppliers at this time. However, it will continue to keep abreast of the near-term developments in market fundamentals to identify if a rating update is required.

When will the DRAM industry bounce back from its current state? DRAM suppliers now are spending less in their capital that eventually will cause supply levels to become more constrained and prices to rise and later leads to a recovery.

Slowly, but surely
"The recovery is likely to take place slowly. DRAM wafer output will increase by a small margin of about 10 percent in 2009, compared to 40 percent in 2007," said iSuppli. However, the two leading DRAM suppliers, such as Samsung Electronics Co. Ltd and Hynix Semiconductor Inc., are engaging in an aggressive migration to the sub-60nm manufacturing process. This helps in boosting their output and avoiding the risk of further oversupply that may linger into the 1H 09. This could delay a market recovery until the 2H 09.

In a press release issued on April 25, iSuppli said the NAND flash memory spot market price rally that occurred early in Q2 would be short lived, a forecast that proved to be attainable. After iSuppli slashed its NAND flash projection early this year, the market has been mired in terrible conditions, primarily because of a major inventory overhang and weak consumer spending that has resulted in oversupply.

However, suppliers apparently took heed of iSuppli's warning and have been responding to the oversupply ever since. "Because of this, the supply and demand equation will be useful in Q4, according to iSuppli." This means that the NAND flash suppliers will suffer for one more quarter before pricing should begin to recover.

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