August 28, 2007 – Contract pricing for all memory devices have shown signs of recovery in the past month, but stubbornly soft spot prices threaten to erode those gains, and the next few weeks could spell real trouble for the DRAM market, according to data from several analysts.
DRAM price slump at the worst time
Contract prices for mainstream DRAM devices have risen as much as 10% in the past month, boosted by market uncertainty about the impact of the power outage at Samsung, Gartner notes, in a new research note. However, spot prices quickly headed back down below $2 once analysis suggested the outage wouldn’t have much affect on DRAM supplies. This slump is already having an impact — buyers are using those low spot prices to resist contract price increases from chipmakers, and even continue to ask for price reductions, Gartner notes. “If the spot market remains weak for the next few weeks, this will mean that contract pricing will have to come down in what is the strongest demand period for DRAM,” the firm writes in a new report.
In its weekly memory market tracker, DRAMeXchange notes that there’s a 10% gulf between DRAM contract and spot prices, which is adding pressure to DRAM makers in their negotiations with customers, and prices are expected to weaken even further next month. Migrating to more advanced processes will help reduce their costs and soften that pricing blow, but DRAM makers who can’t keep up with the 70nm transition will end up bearing higher costs.
iSuppli also agrees that September will be the turning point in DRAM pricing, and has accelerated its projection of a DRAM downward correction from October to September. DRAM producers helped themselves in 1H07 by cutting back production, “but OEMs and the channel are still working off the inventory oversupply left over from January,” noted Nam Hyung Kim, director and chief analyst for memory ICs/storage systems at iSuppli, in a new report. Furthermore, a shortage of supplies of LCD panels has raised prices and cut into PC makers’ budgets for adding more memory. “Weak pricing in September will set the stage for further erosion in the fourth quarter,” possibly double-digit sequential declines bringing pricing back to the low levels seen in 2Q07, he said.
Still, those production cutbacks will have a long-term benefit, by keeping annual bit growth under 60% this year, instead of the 97% iSuppli expected to see. Because of this, the firm “remains optimistic about DRAM market conditions in 2008.”
iSuppli’s Kim disagrees, though, about the impact of Samsung’s power outage on the DRAM market, noting that the company had to shift some capacity from DRAM to NAND to cover the impacted operations. He thinks this shift will prevent Samsung from reaching its planned mid-20% bit production growth in 3Q, but overall that won’t have as much of an impact on the DRAM market due to the market’s larger inventory issues.
NAND outlook getting better
Meanwhile, in the NAND market, contract pricing also has “increased significantly” in August despite a build in supply for more advanced devices and a transition to multilevel cells, according to Gartner. “Prices had to fall after soaring from the panic that ensued because of the power outage at the Samsung fabs,” the firm notes, which compounded the fact that supply was already short (as seen by “considerable” increases in NAND flash contract pricing). Samsung’s power outage “came at an inopportune time given the tight supply environment, but it was not a disaster.”
With speculation of demand for a variety of applications, including portable media players, USB flash drives, and embedded flash in handsets, “shortages are likely to persist for at least the next few months as anticipation for the seasonal build heightens,” the Gartner analysts wrote. In fact, like with DRAM, the next few weeks will be critical for NAND flash supplies, particularly awaiting the impending refresh of Apple’s music player line. “If it’s compelling, immediately available and aggressively priced, it will likely mean NAND flash shortages will continue deeper into the year,” according to the analysts.
DRAMeXchange is less bullish, though, about NAND flash heading into the home stretch of the year, citing a weaker-than-expected back-to-school demand boost in the US and Europe. Also, the group cites says suppliers of memory cards and USB drives are blaming the US subprime mortgage debacle for denting the consumer market and causing sagging sales at North American retailers. “More and more people are now having second thoughts on whether or not to purchase a consumer electronic product,” the group said, and “it remains unclear how long the effects of the crisis will last.” European workers’ return to the office after summer vacations could prop up demand, though, the firm said. — J.M.