iSuppli upgrades DRAM market rating to positive

EL SEGUNDO: Amid a shortage of DDR3 memory and a resulting rise in pricing, iSuppli Corp. has upgraded its rating of near-term conditions for DRAM suppliers to positive.

iSuppli had maintained its negative rating since September 2008 until it upgraded the condition to neutral two weeks ago.

“The improvement in circumstances is a welcome relief to a DRAM market that has been stuck in a state of oversupply for nearly three years,” said Nam Hyung Kim, chief analyst for iSuppli.

“The oversupply has been a disaster for the global DRAM industry, with revenue dropping to $23.6 billion in 2008, down from $34 billion in 2006,” Kim said. During this period, the profitability of DRAM suppliers evaporated completely, and the combined operating loss for the entire DRAM industry amounted to $15 billion during the last three years.

Kim added: “With rising demand and limited supply for DDR3, the global DRAM industry is set for a sustainable recovery that will extend into the fourth quarter and pave the way for a robust annual increase in 2010.”

DRAM revenue plunged by 19.5 percent in the first quarter compared to the fourth quarter of 2008. However, with the rise in DRAM pricing, revenue increased by 37.5 percent in the second quarter compared to the first. Revenue is set to continue to rise on a sequential basis by more than 20 percent each in the third and fourth quarters.

The figure presents iSuppli’s worldwide quarterly revenue growth forecast for DRAM.Source: iSuppli, July 2009

Kim this month visited Asia where DRAM suppliers confirmed the DDR3 shortage. The suppliers reported PC OEMs are making a rapid shift from DDR2 DRAM, which has been the industry standard for nearly three years, to DDR3 because of its high performance and low power usage.

However, suppliers have not yet ramped up production of DDR3 enough to meet this new demand. DDR3 captured only 8.4 percent of total bit shipment in the first quarter of this year and is expected to reach 15 percent of total bit shipment in the second quarter, based on iSuppli’s preliminary data.

iSuppli predicts the DDR3 shortage will persist during the third quarter because suppliers won’t be able to meet current demand. While the limited investment of DRAM suppliers is slowing their 50nm migration—a process necessary to ramp up DDR3 production quickly—the DDR3 shortage will cause supplies of DDR2 to tighten as Tier-One suppliers continue to convert production from DDR2 to DDR3.

Nevertheless, if DDR2 prices rise, suppliers in Taiwan are likely to increase their utilization rates, limiting price increases. Thus, depending on Taiwanese suppliers, a recovery in DDR2 prices could be limited, widening the price gap between DDR2 and DDR3.

The price crossover between DDR2 and DDR3 is expected to arrive near the end of the year or in early 2010 when DDR3 volume rises to be equal with DDR2’s.

While the DDR3 shortage and the improvement in market conditions are positive developments for suppliers, they represent bad news for PC OEMs and other DRAM buyers.

“Prices are rising in the third quarter, a time when DRAM buyers typically begin to make purchases for the holiday season,” Kim noted. “Adding to the current tight supply for notebook LCD panels, the increase in DRAM prices will result in lower profitability for the PC makers in the second half of the year.”

Memory update: Demand for DDR3 modules remains strong, with supplies limited

USA: As per Converge Market Insights, according to the major DRAM manufacturers, DDR3 demand has been on the rise over the last two months and supply is limited.

Sources claim that all DDR3 server DIMMs (dual in-line memory modules) are going directly to the Tier 1 OEMs as quickly as they can be manufactured, with lead times being quoted as far out as the end of October.

This may not appear like a long time, but given the state of the memory market for the past two years, any talk of a lead time is big news. The lack of supply in the spot market confirms that parts are becoming scarce.

While the DDR2 market remains flat, the DDR3 market is showing signs of life. Pricing is up about 15 percent to 20 percent over the last four weeks, and while there was no change in contract for DDR2, DDR3 pricing was up about 5 percent.

Converge anticipates that the DDR3 market will continue to show activity as we head into the busier build season. The notebook and desktop modules should also see a spike in demand in the coming months. Look for supply issues to occur with UDIMMs (unbuffered DIMMs) as well.

Memory update: DRAM market remains quiet, DDR3 inquiries increase

USA: According to Converge Market Insights, despite several contract price increases since the beginning of May, the DRAM market remains relatively quiet.

Module activity in the spot market remains absent; however, we are tracking an increase in inquires for DDR3 -- especially for server modules. Although there have not been any significant spot market buys for DDR3, there has been some concern regarding their supply situation for the next two to three months.

Spot market pricing for DDR3 is much higher than direct prices, in some cases as much as 10-15 percent higher. Converge believes that the box builders are increasing their output of systems with DDR3 memory for the upcoming build season.

The DRAM manufacturers aggressively priced DDR3 to speed up the adoption rate, and it appears to be stimulating some demand. There do not appear to be large quantities of DDR3 product available in the spot market, so this could be a development worth watching.

Memory update: DRAM market remains unsettled with volatile weeks ahead

USA: According to Converge Market Insights, over the last several weeks, there has been a lot of uncertainty in the memory market as DRAM manufacturers attempt to cut supply from reaching the spot market.

These tactics are intended to raise prices to justify a substantial increase in contract prices for the first half of May, which will settle 10–12 percent higher. Spot market pricing has also gone up over a two-week span. Prices for 1GB PC800 modules have risen from $9.50 to $11 and for 2GB PC800 modules from $19 to a high of $22 as of May 8.

Although there are some signs of product tightening, Converge believes that the next four to six weeks will be extremely volatile in the DRAM market. The games will continue between the DRAM manufacturers and end users as they try to gauge what the true supply situation will be heading into the next two months.

Converge believes that the next three weeks in particular could produce significant swings in the spot market for both price and supply. There is a holiday in the United States, Hong Kong and Taiwan during the last week of May, which could affect supply and demand.

Vendors may look to position themselves a little earlier than normal for the month end, which could have a negative impact on price. If that is the case, we should see more supply in the market for month’s end.