Industry Forecast
A report from iSuppli summarises the DRAM industry forecast.
DRAM Price Downturn to Arrive a Month Early
Following a brief respite, market conditions for DRAM suppliers are set to take a turn for the worse in September, iSuppli Corp. predicts.
iSuppli previously forecasted that DRAM prices would undergo a downward correction in October, following the current period of relative strength that brought an end to a phase of severe erosion in the second quarter. However, iSuppli now believes the DRAM prices will begin to decline one month earlier, in September.
Near-term market conditions remain in a state of flux with a great deal of uncertainty in the supply chain as suppliers and distributors continue to work off a glut of DRAM inventory. Furthermore, sales momentum is waning in the DRAM spot market, as rising prices and falling supply of LCD panels cut into the available budget for memory in some PCs.
This is bad news for memory suppliers, which had been basking in the present period of relative pricing strength. Weak pricing in September will set the stage for further erosion in the fourth quarter.
iSuppli now foresees the possibility of doubledigit sequential price declines in the fourth quarter, erasing any increases that aided suppliers in the third quarter. Because of this, DRAM suppliers’ profitability will dwindle in the fourth quarter compared to the third, iSuppli predicts.
DRAM dramas
Amid signs of improvement in pricing, iSuppli in July upgraded its rating of near-term market conditions for DRAM suppliers to “neutral,” up from “negative.” OEM DRAM prices increased in the first half of July after the market hit bottom at the end of June. The main reason for the price increases was a reduction in production among DRAM makers, which brought supply and demand back into balance.
“By reducing their output, DRAM suppliers have helped bring about higher pricing in the third quarter,” said Nam Hyung Kim, director and chief analyst for memory ICs/storage systems at iSuppli. “But OEMs and the channel are still working off the inventory oversupply left over from January, which will make it a difficult fourth quarter for memory manufacturers. Furthermore, the shortage of LCD panels is preventing white-box PC makers from purchasing more DRAM. Increasing panel prices also are slowing DRAM content growth in PCs in the third quarter.”
However, suppliers’ efforts to cut production starting in the third quarter will play an important long-term role in strengthening the DRAM market. Global annual bit growth in 2008 will amount to less than 60 percent, compared to the explosive 97 percent bit growth expected in 2007. This will help rebalance supply and demand in the market.
Because of this, iSuppli remains optimistic about DRAM market conditions in 2008.
iSuppli still anticipates that NAND flash will undergo a downward price correction in September.
Despite all this, iSuppli is not reducing its rating of DRAM market conditions to “negative” at this time.
iSuppli predicts global DRAM revenue will rise by 17.5 percent in 2008, following weak growth of less than 2 percent in 2007. Figure 1.
The wild card
There is one factor that could radically alter the outlook for the fourth quarter: the power outage that impacted operations at Samsung Electronics Co. Ltd’s NAND flash memory manufacturing operations. This outage forced Samsung to shift some DRAM capacity to NAND.
It’s unclear how much of an impact this will have on Samsung or the overall DRAM market—but it is an important development that must be watched during the rest of the year.
iSuppli believes that Samsung will not achieve its plan to increase its DRAM bit production in the mid 20 percent range in the third quarter due to its shift to NAND manufacturing.
“However, Samsung’s impact on the DRAM market is less than it might otherwise be due to the DRAM inventory issues,” Kim said.
