The following column was provided by Nam Hyung Kim, a principal analyst with iSuppli Corp., an El Segundo, California-based market research firm.
Despite diverging trends in DRAM demand and the possibility of a resumption in price erosion next month, iSuppli Corp. is maintaining its "positive" rating for near-term DRAM market conditions.
Recent DRAM pricing trends are sending mixed signals regarding the state of the market.
In the U.S. spot memory market, a limited rise in demand is exerting downward pressure on prices. U.S. spot market prices for 256Mbit Double Data Rate (DDR) SDRAM declined by 1 percent last week.
Meanwhile, in OEM contract negotiations, sales remain healthy. OEMs have commenced adoption of high-density memory modules and are shipping more PCs that come with 512Mbytes of DRAM and fewer with 256Mbytes. This trend is boosting demand.
Because of this, iSuppli continues to believe that near-term DRAM market conditions are positive. DRAM prices will remain stable in the second half of October iSuppli predicts. However, this price stability will result in decreased aftermarket module sales. Since the spot market is the major source of DRAM chips for the upgrade module area, the OEMs' adoption of higher-density modules will lead to slower spot-market demand.
However, iSuppli is not counting out the possibility of another price decline in mid-November, when the tier-one DRAM makers and the Taiwanese suppliers are expected to boost DRAM shipments. This could increase availability and depress prices.
The health of the DRAM market will be strongly influenced by demand for the next-generation mainstream part, DDR2. The market is undergoing a transition from DDR to DDR2. If this transition occurs more slowly, it will mean there will be more DDR on the market, impacting prices.
In the second quarter of 2003, iSuppli predicted that DDR2 would represent 7 percent of total DRAM unit shipments in 2004. Based on iSuppli's latest forecast, issued in the third quarter of 2004, DDR2 will account for 9 percent of the entire DRAM market this year, which is close to our outlook from more than a year and a half ago.
However, actual DDR2 demand in 2004 could fall short of iSuppli's conservative prediction, resulting in a negative impact on the market.
Nonetheless, iSuppli still believes that positive market conditions will continue in 2005. A combination of significant product mix issues and a process migration to 90nm will constrain DRAM supply in 2005, supporting prices.
Until evidence to the contrary appears, iSuppli intends to maintain its positive view of the market.
From the demand side, global economic conditions are always important. Factors like oil pricing, IT expenditures and consumer spending will be the key to determining the health of the DRAM market in 2005. Furthermore, the upcoming U.S. presidential election is adding uncertainty to worldwide economic conditions.
However, until iSuppli sees more evidence of a global economic slowdown, we are maintaining our positive view of market conditions.