The pace of DRAM price erosion is accelerating in August, a phenomenon that is expected to continue throughout the third quarter as suppliers boost their shipments.

iSuppli Corp. has maintained a negative rating of DRAM market conditions since May, due to weak demand. In general, prices have been on the decline on the U.S. spot market for the past four weeks.

Pricing for 256-Mbit Double Data Rate (DDR) SDRAM declined by 5 percent this week. On the Asian spot market, the price for 256-Mbit DDR fell to less than $4, marking the first time this has occurred since the week of January 19.

OEM contract prices also declined by 3 to 5 percent for the first half of August.

The recent spate of weakness comes after prices were stronger than expected in June and July.

The major factor propping up prices during those months was a reallocation of production by the top suppliers from DRAM to other parts, such as NAND flash memory, CMOS image sensors, Pseudo SRAM (PSRAM) and logic. As a result, shipments during the second quarter from three of the four top DRAM suppliers were nearly flat -- at just 2 to 3 percent growth -- or they even decreased. This resulted in higher-than-expected DRAM prices.

In the second quarter, the industry's average manufacturing cost for 256Mbit equivalent parts was $3.60, while the industry average selling price was a whopping $6.

Thus, the present declines are not surprising, given that prices had remained high until the end of the second quarter.

iSuppli expects DRAM prices will continue to be under pressure throughout the third quarter. Top DRAM suppliers that experienced low shipment growth during the second quarter now are increasing their deliveries.

For example, Micron Technology Inc. at its most-recent investor conference call indicated it would increase its DRAM shipments by a double-digit rate in the third quarter.

Infineon Technologies AG also is expected to boost its shipments significantly in the third quarter, due to the contribution from its manufacturing partner, Inotera Memories Inc. Furthermore, Infineon's fiscal year will end in September, which will spur the company to grow its sales, as it attempts to boost its quarterly financial results.

Hynix Semiconductor Inc. also is trying to improve its 0.11-micron yields to match the level of its competitors in order to maintain its number-two position in the worldwide DRAM market.

With these factors in mind, iSuppli expects to maintain its negative rating of the DRAM market for the near term.

Nam Hyung Kim is a principal analyst with iSuppli Corp. Nam Hyung Kim can be contacted at: nkim@isuppli.com