The following column was provided by Nam Hyung Kim, a senior analyst with iSuppli Corp., an El Segundo, Calif.-based market research firm.
After six consecutive weeks of declines, DRAM pricing on the U.S. spot memory market gained some upward momentum in late May-but suppliers shouldn't celebrate yet, because renewed price pressure may be looming, iSuppli Corp. believes
Spot market pricing for most types of DRAM tracked by iSuppli rose this week. The 128Mbit Double Data Rate-266 SDRAM in the 16-bit by 8 cnfiguration led the price increases with a near 3 percent rise to reach $1.73. The next biggest rise was experienced by 256-Mbit DDR-333 SDRAM in the 32-Mbit by 8 configuration, whose spot market price rose by more than 1.6 percent to reach $3.15.
Are these price increases sustainable? To try and find out, iSuppli examined their cause.
First, iSuppli ruled out a demand-driven price increase, given that there has been no substantial rise in sales that could increase the value of DRAM. It then turned its attention to the supply side, where we discovered that some DRAM makers are retaining inventory, rather than selling it off on the spot market. These suppliers are sitting tight with hopes that the second half will bring improved market conditions and higher pricing for their DRAMs. This has resulted in diminished supply and increased prices on the spot market.
Indeed, iSuppli predicts that supply will be tighter in the second half of the year compared to the first - although the glut will persist throughout 2003.
The large module makers are following suit, buying DRAM directly from suppliers at cheap prices with the intention of holding product until the second half of 2003 when conditions improve. These large contract purchases are further reducing DRAM supply on the spot market, helping to stabilize prices.
When iSuppli adds up the lack of a rise in demand with the inventory build and the spate of speculative buying, the present price increases appear to be unsustainable.
Supply and demand factors could conspire to send DRAM prices down again in June.
Demand is expected to remain sluggish in June. Furthermore, most suppliers' financial quarters end in June, so they tend to ship more products during the month in order to meet their financial targets, causing DRAM prices to decrease.
June is historically a bad month for DRAM pricing. Since 1991, the price per bit for DRAM has decreased by 8 percent on average in June, while shipments have risen by 14 percent.
The present spot market price increases could give DRAM suppliers some leverage as they enter price negotiations for the first half of June. As iSuppli predicted, the suppliers suffered another price decrease in contract negotiations for the second half of May.
If the suppliers can maintain present pricing levels during the next round of negotiations, they will have scored a significant win, iSuppli believes.
Nam Hyung Kim can be contacted at the following email address: email@example.com