Memory sector ready to rebound? Not quite

April 30, 2009 – Signs that the DRAM market hit a bottom in 1Q and is poised to rebound don’t quite paint the whole picture, which from a broader perspective still shows things plodding along, far from a meaningful recovery.

Global sales declined 14.3% in 1Q for both DRAM and NAND flash, but are expected to swing to a 3.6% Q/Q increase in 2Q, and then surge to a strong finish with nearly 22% growth in 3Q and 17.5% in 4Q. But sales only tell part of the story; “the oversupply situation will continue to be acute,” notes iSuppli’s Nam Hyung Kim, director and chief analyst for memory ICs and storage. Shipments of 1Gb-density equivalent will still outstrip demand through 3Q — even if every Taiwan DRAM supplier went dark (taking 25% of global DRAM Mbit production offline), he notes. And there’s little else firms can do besides cutting capacity (which Kim expects more of in 2Q), other than wait for demand to return.

That imbalance will keep ASPs from bouncing back significantly, and thus keep most suppliers from even sniffing profitability, the real measure of recovery for most memory suppliers. DRAM prices are now about a third of Taiwanese cash costs, Kim notes, and would need to improve by “a few hundred percentagepoints to make any kind of impact.”

The picture in the NAND market is more complicated, but similarly the positivity of improved pricing is overshadowed by the reality of too much production vs. still-soft demand. ASPs have sunk to nearly breakeven cost even for market-leading Samsung. And even the consumer strength of NAND-heavy Apple products can’t buoy the sector. “Even if Apple’s order surge and it books most of Samsung’s capacity, it would require a commensurate increase in demand to other suppliers to generate a fundamental recovery in demand,” Kim writes, and he sees no signs of “substantial” ramp in Apple orders to other suppliers.

Inventory reductions in the channel are mainly attributed to restocking; Toshiba and Hynix won’t keep decreasing production without a demand spike (unlikely near-term with the global recession), so the imbalance continues, and all players (except Samsung for the moment) suffer with losses.

“Production cuts undoubtedly will have a positive impact on the market in the future,” Kim says, but warns that “the surge in optimism is premature.”


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