Slow shipment growth in Q2, oversupply and transition challenges are all culpritsA dramatic oversupply and freefalling prices are in store during the third quarter for the dynamic random access memory (DRAM) space, resulting in a turbulent second half for besieged DRAM suppliers, according to a new IHS iSuppli DRAM market brief from information and analysis provider IHS.
The average selling price for Double Data Rate 3 (DDR) in the 2-gigabit (Gb) density—the bellwether DRAM product—is projected to drop to $1.60 in the third quarter, down 24 percent from $2.10 in the second. The dive would be the biggest decline for the year, following a surprisingly solid second quarter during which pricing fell only 5 percent from the ﬁrst. Going into the fourth quarter, the price could plummet another 22 percent to $1.25—dangerously close to cash costs for many manufacturers. Only a year ago in the third quarter, pricing stood at $4.70.
Contrary to typical seasonal patterns in which prices are very soft during the second quarter, that period this year saw relatively ﬂat, unchanged DRAM pricing compared to the ﬁrst quarter. However, companies did not capitalize on the healthy pricing levels to increase shipments in the second quarter— which, in retrospect, may have been the best time to do so.
DRAM manufacturers attribute the low growth in shipments in the second quarter to two primary reasons: bloated inventory and challenges in transitioning to new process technologies.
Taiwanese-based Nanya, for instance, had as much as 30 days of inventory when it started to throttle shipments, reﬂecting its challenges in getting material from factories into the hands of customers. For its part, South Korean Hynix Semiconductor indicated it suffered poor yields at the 38-nanometer process node, the result of ramping up to a new process. And in the case of Idaho-based Micron Technology, a large disparity between spot and contract prices in May—the company’s ﬁnal ﬁscal month for the third quarter—prompted the ﬁrm to build inventory instead of selling into the spot market.
Nonetheless, if trends in the past are any indicator, DRAM companies not only will shift inventory rapidly but also will move quickly up the yield curve. As a result, the events of the second quarter won’t continue for long this year.
Should historical patterns hold fast in the third quarter—and nothing suggests that they won’t—the industry could see a ﬂood in DRAM inventory and an ensuing drop in prices. As much as a 15.9 percent increase in shipments is anticipated in the third quarter, and prices are not expected to ﬁrm up anytime soon because of that, IHS believes.
For DRAM suppliers faced with the inevitable—a descent in pricing sure to provoke more concern in the industry—there’s some room left to maneuver during the period. A weakening DRAM market will encourage manufacturers to optimize their product mix, moving toward increased production of a higher-margin memory such as NAND ﬂash. And for manufacturers still weighed down by lagging technology, capacity could be cut back to reduce overall DRAM supply in the market.
Both these measures could help stabilize DRAM prices in what is shaping up to be a buyer’s heaven for the rest of the year.