The usually volatile contract market for DRAM has entered a rare state of near stability, with little pricing movement during the past three months. Even prices on the normally roller-coaster spot market have slipped an average of just 16% since early this year.
Analysts and chipmakers agree that the unusual instance of even-keel pricing has been caused by sluggish demand, low supplier inventories, and a slow increase in memory chip production. What no one would predict is if the current situation will hold over the long term or give way to another jolt to prices.
"It's very unusual to have such a stretch of many months of relative DRAM price stability," said Victor deDios, an analyst at deDios & Associates, Newark, Calif.
de Dios said seasonally weak second-quarter demand and a supply picture that is in near balance with demand have allowed DRAM makers to keep inventories low. At the same time, they have not had to cut contract prices or move product to the spot market to jettison excess stock, which has helped to maintain prices.
DRAMExchange.com reports that contract DRAM pricing has changed only moderately since mid-February. After holding steady for months, the contract price of mainstay 256Mbit DDR SDRAM dipped 5% last week, to a range of $3.40 to $3.80. The contract range for 256Mbit single-data-rate SDRAM also has seen little movement and last week oscillated between $4 and $5. The same trend held true for 128Mbit SDRAM, where prices last week spanned $2.50 and $3.25.
Analysts said several factors are contributing to the pricing environment. Many had expected single-data-rate SDRAM tags to shoot up as manufacturers shifted production to DDR chips, but now say that soft overall demand is keeping contract pricing in check.
The slackening demand for all DRAM types may in part be caused by a sudden falloff in PC sales in China and other Asian markets because of severe acute respiratory syndrome (SARS), said Ken Hurley, president of Nanya Technology Corp. USA, San Jose. (See related story on page 1.)
Bernd Lienhard, vice president of memory products for Infineon Technologies North America, San Jose, said customers have held to a steady buying pattern in the last few months as they waited for Intel Corp. to launch its 865 Springdale chipset, which supports DDR- 400 SDRAM.
"They were reluctant to make any major shifts until Springdale came along. Now that Intel has introduced it, we'll see a buildup of demand for DDR400," said Lienhard, who estimated DDR400 will account for about 10% of all DDR SDRAM sales in the third quarter.
A spokesman for Micron Technology Inc., Boise, Idaho, agreed there has been no big ramp-up of supply to upset the market. Micron is estimating its own bit growth for the second quarter will be "in the middle-teen range."
Additionally, supply may have been constrained because of lower initial yields as DRAM makers started up the learning curve as they shifted production to 0.13- and 0.11-micron process technology, said Nam Kim, a memory analyst at iSuppli Corp., El Segundo, Calif.
Low DRAM vendor inventories were also cited as keeping both contract and spot prices in check. Most producers said they have two to three weeks of stock on hand at most.
Jim Elliott, DRAM product marketing manager at Samsung Semiconductor Inc., San Jose, said most of Samsung's DRAM output is going to contract customers, with extremely little left for the spot market.
Nanya's Hurley warned that with such low vendor inventories, any spike in demand could even possibly cause a shortage, with DRAM prices actually climbing for the first time in many years.
Samsung's Elliott said concern over possible DRAM price hikes has caused several large OEM customers to seek long-term contracts in an effort to lock in prices.
One scenario not developing as predicted is the fallout from the DRAM duties imposed by the United States and Europe against Hynix Semiconductor Inc. The tariffs have effectively blocked Hynix from exporting DRAM directly to either market.
Some analysts had predicted the penalties would force Hynix to sell its chips at a sharp discount in Asia. However, the company apparently has been able to transfer its deliveries to customer plants outside Europe and the United States and avoid the bulk of duty payments.
"Because Hynix has been able to spread its DRAM production among many regions, the disruption has been minimal," de Dios said.
Farhad Tabrizi, vice president of worldwide marketing at Hynix, said "it isn't a big issue with us to drop-ship DRAMs to plants of our U.S. and European customers" elsewhere in the world.