A five-month surge in DDR SDRAM prices may now start to level off, chip manufacturers and analysts concurred last week.
The prolonged spike was attributed to much stronger demand for DDR than memory-IC suppliers had anticipated, an increase that led bit demand for DDR chips in September to surpass that for single-data-rate SDRAM, according to online broker DRAMExchange.com.
While vendors initially failed to adjust their production rates to meet the swell of orders, most say they have since increased DDR output. That, combined with the slowing demand that typically accompanies the post-holiday season, is expected to ease market shortages.
"[DRAM makers] are making a fast switch to DDR, which should alleviate any supply problem," said Jim Sogas, vice president of marketing at memory supplier Elpida Memory Inc., Santa Clara, Calif. "And historically, demand flattens out in the first quarter of the year, which also affects pricing."
The industry's rapid shift to DDR SDRAM began last summer and escalated into the fall, according to Amy Mackay, an analyst at research firm ICIS-LOR, Houston. The tight supply caused at least two vendors, Micron Technology Inc. and Nanya Technology Corp., to report instances in which they were forced to place contract customers on allocation.
At the same time, suppliers tried to maintain slim inventories. Ken Hurley, president of Nanya Technology USA, San Jose, said his company has less than two weeks of stock on hand, compared with normal levels of four to five weeks. Micron and Samsung Electronics Co. Ltd. reported similar levels.
Hurley also believes that some DRAM vendors "had difficulty transitioning to DDR in the second half," which curtailed supply. Matthew Sheerin, an analyst at Thomas Weisel Partners LLC, New York, said he has also identified DDR production bottlenecks.
Additionally, DDR supply was affected by the fact that Hynix Semiconductor Inc., among the leading global DRAM producers, has not shifted a significant percentage of its production lines to DDR, according to Sherry Garber, an analyst at Semico Research Corp., Phoenix. A recent report by Merrill Lynch & Co. Inc., New York, estimated that DDR will account for only 13% of Hynix's total DRAM production in the fourth quarter.
OEM contract prices for 256Mbit DDR SDRAM jumped 37% from June to mid-November, and 128Mbit DDR shot up 43% over the same period, according to DRAMExchange.com. Spot market prices climbed even more, with 256Mbit DDR tags rising 79% and 128-Mbit by 68% over the same period.
During the first two weeks of November, contract prices for 256Mbit DDR ranged from $7.12 to $7.88, and from $3.45 to $3.90 for 128Mbit densities.
But DDR pricing may have reached its peak for now. Jonathan Joseph, a semiconductor analyst at Salomon Smith Barney Inc. in San Francisco, said he expects current pricing to hold through November and begin to fall in December as increased production meets slower seasonal demand.
"The high-watermark for DDR pricing has been reached," said Lane Mason, a memory analyst at Denali Software Inc., Palo Alto, Calif. "As vendors shift most of their production to DDR, supply will increase markedly. Next year we could see a return of the DRAM dog-eat-dog market -- this time in DDR."
Historically, continued rising prices tend to help DRAM suppliers' profit margins but can ultimately put a dent in unit demand, according to observers. This is typically because high ASPs often lead PC makers to limit the amount of memory they install per box, noted Jim Elliott, senior DRAM product marketing manager at Samsung Semiconductor Inc., San Jose.
"System companies like to keep memory cost at about 10% of the total PC box [bill of materials]," Elliott said. "DDR prices are now right at the cusp of this cost ratio."
A roll call of DRAM makers revealed that a rapid shift to DDR production does appear to be under way. By the end of the year, Samsung expects 75% of its DRAM output to be DDR, while Micron estimates that about half of its output will consist of the higher-speed version.
Elpida said DDR already represents 60% of its DRAM output, and Nanya, which has been aggressive in moving to the memory, said 97% of its DRAM production this quarter will be in the form of DDR.
While DDR prices soared in recent months, contract prices for 256Mbit densities of single-data-rate SDRAM fell 56% from June to mid-November, and 128Mbit SDR SDRAM chips dropped 40%. However, analysts noted that in the last week, SDR SDRAM prices have bottomed out in the spot market and even increased in a few instances.
Samsung's Elliott said SDR SDRAM tags are likely to rise in the months ahead as suppliers stage a massive migration to DDR. "We could see single-data-rate prices spiking in the second half of next year," he said.