Sept. 11, 2008 – Instead of providing an economic boost for China, the Beijing Olympic games actually caused a trough in demand for memory chips due to restrictive import rules and overshadowed regional purchasing trends, according to iSuppli. But with the Games now over and the holiday season approaching, the firm expects a sharp uptick in DRAM demand through year’s end.

“The games clashed with the traditional summer promotional season for PCs in China, with many consumers glued to their TVs and absent from stores,” said John Lei, analyst, memory ICs and storage systems for iSuppli, in a statement. Also, there was no bump in DRAM demand for IT equipment used by the Olympics, since the gear was purchased years ago.

Moreover, China laid down strict restrictions on imports during the games, which slowed purchasing activity on the DRAM spot market. And even before the games, rising inflation was denting PC demand in China. Lei says that DRAM shipments in 3Q in China should end up about flat with 2Q08, falling short of expectations.

This wasn’t entirely unanticipated — Japanese execs were already wary of what they saw as sluggish demand in China many months before the Games began.

But now that the games are over and the holiday season is approaching, consumer PC purchasing should pick up again, driving up domestic DRAM demand, Lei said. “Much of the demand that disappeared during the Olympics could return during the holiday season,” Lei said. “Consumers will be upgrading and replacing their old PCs to meet software requirements. With DRAM prices at low levels and inflation more tame, consumers may be out buying PCs in force.” Meanwhile, consumer pricing is seen falling through 2H08, reducing inflationary pressures and spurring consumer spending.

And those IT facilities put in place to support the Olympics? Most of the PCs are at least 2-3 years old, so look for an upgrade cycle around the National Holiday period in the fall of 2009. Also look for upgrades from fast-growing Chinese ISPs, who will likely just add more memory to existing systems rather than purchase new equipment.

Even with the Olympic disappointment in DRAM demand, China is still a vibrant market for memory chips — only 55% of Chinese families own a PC, suggesting future growth particularly in lower-cost white-box PCs. The overall DRAM industry still has to deal with “significant” inventory buildup that’s still eroding prices; 1Gb DDR2 DRAM plunged 18% in the first week of Sept. alone, and a severe price drop should continue through the month. But in China, that only means “it’s a great time to buy,” iSuppli says.