January 24, 2006 – Conditions are improving in the beleaguered DRAM market, as supplies are worked off and prices start to rise, but it’s still too early to declare a fundamental recovery in the market, according to a new report from analyst firm iSuppli Corp., El Segundo, CA.
The early rebound in DRAM prices is due in part to DRAM suppliers’ efforts to reduce inventory in December, cutting stockpiles from 4.8 weeks in the prior month to 3.8 weeks. Also, Samsung has been shifting production from commodity DRAM to more profitable memories such as NAND flash and noncommodity DRAM, resulting in reduced supply of commodity DRAM on the market, according to Nam Hyung Kim, iSuppli director and principal analyst. This is causing some PC OEM buyers to find other DRAM suppliers, resulting in unexpected orders for Samsung’s competitors, and boosting spot-market prices early in January and possibly boosting contract prices later this month.
While these factors are contributing to improved market conditions in the short term, iSuppli remains skeptical about a sustainable broader DRAM price rally. Inventories are still above normal, and suppliers will sell off inventories to offset the DRAM reductions from Samsung, countering the price increase. Also, demand appears to be limited to a select group of PC OEMs, so supply reductions will be only temporary. Further, iSuppli projects PC shipments will drop 17% in 1Q06, which also will inhibit DRAM demand and pricing.
Still, iSuppli is keeping the door open to a possible upgrade to “positive” for the sector, depending upon several factors, primarily an aggressive transition fabs to NAND production and migration to 90nm process technologies. Samsung already has begun some NAND production at one of its remaining DRAM facilities, and iSuppli expects Samsung’s new 300mm Line 15, slated to come online in 1H06, will be entirely for NAND memory production. Hynix also is expected to transition its Line M7 DRAM fab to some NAND flash production this year, while moving its Line M6 to China in 2H06 and the resulting downtime will further reduce DRAM bit growth. Meanwhile, Micron is seen aggressively moving up NAND flash production at 300mm sites in Manassas, VA, and Lehi, UT, following the formation of its JV with Intel, IM Flash Technologies LLC.