Weak demand has once again sent DRAM prices plummeting, with contract prices for 128Mbit synchronous DRAM (SDRAM) dropping as much as 20% in May, following a similar pattern on the spot market.
However, market watchers believe the trend will reverse in the third quarter, sending the industry into the first protracted DRAM shortage since 1995.
For now, OEMs are getting bargain tags at about $3.50 for a 128Mbit chip, down from about $5 in April, analysts said. Reports from South Korea last week had Samsung Electronics Co. Ltd. selling parts under contract for as low as $3.60, while chips from Hynix Semiconductor Inc. were as low as $3.20.
Suppliers declined to discuss specific pricing, but dismissed the fluctuation as a seasonal phenomenon, though perhaps more dramatic than historical seasonal moves.
"It's not unusual for PC demand to fall in the second calendar quarter in anticipation of the new back-to-school models," said Jim Sogas, vice president of sales at Elpida Memory (USA) Inc., Santa Clara, Calif. "It may be going down more this time than it has historically, although DRAM has been on violent swings for at least a few years."
Excess supply lingering since early this year has been compounded by a number of factors. With the end of the quarter approaching, memory suppliers are pushing inventory out into the broker channel to clean up their books. This, in turn, has sent spot-market prices spiraling, pulling contract prices in their wake.
Although the spot market mainly serves Taiwanese motherboard and white-box PC makers, and is not considered an accurate indicator of overall market trends, OEMs still use it as a barometer, said Matthew Godfrey, an analyst at Semico Research Corp., Phoenix.
"Anytime the spot market fluctuates in the $2 range, it's hard for suppliers to keep contract above $4."
But the kicker, Godfrey said, was when Dell Computer Corp. placed a large order with Nanya Technology Corp. in retaliation for what chief executive Michael Dell publicly cited as collusion by the top DRAM suppliers to keep prices high. "That was a real wake-up call for the DRAM market. After that, suppliers had no choice but to drop contract prices," he said.
The blow was strongest to 128Mbit SDRAM, still considered mainstream, although 256Mbit SDRAM is fast approaching the crossover point. Prices on the higher-density chips are affected to a lesser degree, suppliers said.
"At this point, 128Mbit is pure commodity. I don't think it's a clear indicator of the whole market," said Farhad Tabrizi, vice president of worldwide marketing for memory products at Hynix in San Jose.
An anticipated surge in corporate IT spending in the second half of 2002 is expected to usher 256Mbit into the volume arena to support higher memory requirements of Windows XP, analysts said.
Meanwhile, the back-to-school consumer PC season is right around the corner, and market watchers expect PC consumption to eat up excess DRAM inventory, creating a slight shortage.
Semico projects pricing on the spot market will rise as a result, to as much as $6 by the end of the third quarter, while contract pricing will stabilize in the $3.50 to $4 range.
Separately, Gartner Dataquest, San Jose, last week forecast an 18-month period of undersupply starting in the third quarter. Overall, megabytes shipped this year will fall short of demand by 1.7%, according to Dataquest analyst Andrew Norwood.
Hynix's Tabrizi estimates DRAM bit consumption will grow 50% this year, while supply will grow only 45%. "Eventually, demand will catch up to supply, and we'll see better pricing as a result," he said.