iSuppli Downgrades DRAM, NAND Markets

By Ann Steffora Mutschler -- Electronic News, 10/9/2006

Market research firm iSuppli Corp. is issuing downgrades of its near-term market rating for both DRAM and NAND flash—but the reasons behind the reductions are as different as the two memory types themselves.

“In the high-flying DRAM market, conditions for suppliers reached an optimal level in September. Because of this, the DRAM industry has nowhere to go but down, prompting iSuppli to cut its evaluation of market conditions for suppliers to ‘neutral,’ down from ‘positive’ before,” explained Nam Hyung Kim, director and principal analyst with the El Segundo, Calif.-based firm, in a statement.

“In the struggling NAND flash memory market a recent price rally will soon come to an end, causing iSuppli to reduce its rating to ‘negative,’ down from ‘neutral’ before,” he continued.

The firm’s “Momentum Indicator,” which takes into account a variety of factors, including prices, inventories and other market trends, shows that DRAM prices peaked in September, ending a solid quarter of increases. The Indicator also shows that in September overall DRAM market conditions for suppliers were at their best level since April 2004.

However, the latest reading of the Momentum Indicator shows prices soon will begin to decline, iSuppli says.

Since Q3, memory makers have been switching some production from NAND to DRAM.

Further, production of Double Data Rate 2 (DDR2) SDRAM is increasing among suppliers, which will result in greater availability of DRAM shortly and is expected to cause the overall DRAM Average Selling Price (ASP) to decline by 7 percent in Q4 compared to Q3.

The DRAM market’s moment in the sun was brief: just one month ago iSuppli raised its estimate of industry conditions to “positive.”

However, the quick revision of iSuppli’s rating merely reflects the volatile market conditions for this volatile form of memory.

Despite this, 2006 is shaping up to be a better-than-expected year for the DRAM market. Worldwide DRAM revenue growth will rise to 24 percent in 2006, followed by 16 percent growth in 2007.

iSuppli’s forecast for DRAM and NAND flash revenue is presented in the figure below.

Meanwhile, the NAND flash market soon will suffer due to the lack of a demand driver—and an Apple Computer Inc. letdown, iSuppli also believes.

NAND is now enjoying a price rally, which is to be expected at this time of year, as consumer-electronics product makers snap up parts for the pre-holiday equipment building season. However, the rally will peter out by the end of October as the holiday buying period comes to an end, and prices will decline again, iSuppli predicts.

Furthermore, NAND suppliers had been hoping that Apple’s iPod MP3 player introductions in September would include groundbreaking products that would drive increased sales of their memories. But alas, Apple instead announced modest refreshes of its existing iPod products, delivering a disappointment to the NAND suppliers.

Without a new killer application in the near term, NAND market growth will be limited in 2006 and 2007. iSuppli now predicts worldwide NAND revenue growth of only 17 percent in 2006, followed by 13 percent in 2007

iSuppli in June had upgraded its assessment of near-term market conditions for NAND suppliers to “neutral,” up from “negative” before.

The biggest factor determining the state of both the DRAM and NAND markets is the amount of production capacity DRAM suppliers devote to NAND. The DRAM makers control 78 percent of global NAND capacity, giving them a huge influence over availability, pricing and inventory levels.

iSuppli said its next upgrade or downgrade for NAND and DRAM will depend greatly on the production decisions made by DRAM suppliers in the near future.