Supply remains abundant amid major DRAM price corrections; biggest variable in 2H07 will be the demand & supply balance
The month-end inventory pressures have caused the spot price to slip further. Amid an anticipated DRAM price rebound, various retailers and module houses have aggressively stocked up on DRAM chips. Unfortunately, the current May-June market demand does not appear to be in line with their expectations. The overly high inventory levels are thus creating a negative impact on the spot price. In addition, despite the huge DRAM price corrections that began to take place this year, chip manufacturers are still pressing ahead with their capacity expansions. Therefore, whether or not the demand can keep pace with the increasing supply will be a primary issue to monitor in 2H07.
As mentioned earlier, the DRAM spot prices are being further dragged down by the month-end inventory pressures. Even with China's upcoming Labor holidays, downstream retailers and module houses are not seeing any evident increase in demand. Between the April 23rd -30th period, the DDR2 512Mb 667MHz slipped to roughly USD 2.33, while the DDR2eTT declined to USD 2.02. In light of the weak pricing environment, some retailers and module houses started to build up on their inventory levels, as they considered it as the cyclical bottom.
Their actions also stemmed from the fact that the projected PC selling season in 2H2Q would help spur the overall DRAM market demand. However, at the moment, demand is expected to remain weak in the May-June period. The excessive high inventory levels have already started to affect the DRAM spot price.
With DRAM manufacturers continuously increasing their output, the contract price is not expected to rebound soon, where they are forecast to tumble further in May. In response to the persisting DRAM glut, manufacturers are still mostly trying to increase their 12" fab output, in lowering their costs and expanding their market share. The significant DRAM pricing corrections do not appear to be having much an effect on DRAM makers, as they do not have any plans in scaling back on their production. This can be seen by Qimonda's recent decision in constructing a new 12" fab in Singapore. The increasing capacity is believed to be this year's most worrisome factor to the DRAM industry.
Nevertheless, every cloud has a silver lining. The plunging DRAM prices have at least helped drive up the DRAM content per box. For PC running the Vista OS, 1GB of DRAM is a basic requirement. With the Vista adoption rate increasing, only commercial models are now seen carrying 512MB of memory. Some consumer-based models are equipped with two 1GB memory modules. Single 2GB DRAM modules are still not very popular, as they are too expensive; priced at more than USD 100. It is forecast that the 70nm process technology will become more prevalent during 2H07. By then, the 1Gb chip will become mainstream, which will push the 2GB module to the new market standard.
