The following column was provided by Nam Hyung Kim, a senior analyst with iSuppli Corp., an El Segundo, Calif.-based market research firm.
Signs are appearing that DRAM sales are slowing in the second half of August, with price declines appearing on spot memory markets.
Pricing for all Double Data Rate (DDR) SDRAM part types tracked by iSuppli Corp. declined on the U.S. spot memory market this week. This marks the second consecutive week that prices have fallen.
OEM contract prices now are higher than spot market prices, a development that will make it more difficult for DRAM suppliers to increase contract prices for the first half of September. In the second half of August, contract prices increased by a marginal 1 to 3 percent. Contract DRAM prices now appear to be headed downward.
PC OEMs are slowing DRAM purchases because they have built sufficient inventory to support their business during the back-to-school season. These companies have taken advantage of low DRAM prices to build inventory in anticipation of demand. However, if demand falls short of the PC OEMs' expectations, their DRAM orders will be further reduced, sending prices down even more in the near future.
Furthermore, Asian spot market traders are holding copious inventory. Fearing future price declines, some of these suppliers are cashing out their inventories, sending prices down on the spot markets.
Despite these factors, iSuppli does not expect a major price crash. DRAM suppliers' inventory levels are healthy, which means they will not flood the market with parts. And while some spot traders are liquidating inventory, many others are holding onto their stockpiles, as they anticipate another price rally in September.
However, the fiscal year of one of the major DRAM suppliers ends this month, raising the possibility that the company will sell off its inventory to clear its books.
On the demand side, PC and motherboard market conditions appear healthy. Macroeconomic conditions also appear to be strengthening.
All these positive and negative factors mean that DRAM buyers and sellers should remain cautious about near-term market prospects. For the market to maintain its momentum in the second half of the year, new demand will have to materialize, such as the back-to-school season sales.
Thus, now is not a time for celebration. Rather, it's a time for cautious optimism as near-term demand trends unfold.
Further information on the DRAM market is available in Kim's latest DRAM Market Brief report, DRAM Market Gains Slight Momentum, from iSuppli's Standard Semiconductors, DRAM service. Kim can be reached at: firstname.lastname@example.org