DRAM to see another downturn in September, firm warns

By Colleen Taylor, Contributing Editor -- Electronic News, 8/28/2007

DRAM suppliers would be wise not to get too comfortable in the market's current state of strength. Although DRAM market conditions have been on a brief upswing in recent weeks, some analysts predict that DRAM suppliers are set to see conditions once again "take a turn for the worse" even sooner than had previously been forecasted.

Market research firm iSuppli Corp. previously forecasted that DRAM prices would undergo a downward correction in October, following the current period of relative strength that brought relief from Q2's hard-hitting price erosion. However, the firm said today that it now believes the DRAM prices will once again begin to decline in September, one month earlier than was previously forecasted.

iSuppli's prediction of a quickly approaching downturn may come as a surprise to many market watchers; market research firm IC Insights has expressed "cautious optimism" for DRAM suppliers' market in the second half of the year due to what it called "typical" back-to-school and seasonal holiday demand. "Though it was a very difficult six months for DRAM suppliers in the first half of 2007, supply-demand balance appears to be returning to the DRAM market in the second half of the year," IC Insights said in a report released earlier this month. Market research firm DRAMeXchange has even projected that DRAM prices will hit a high in September.

But according to iSuppli, the market's near-term market conditions are actually in a state of flux, as the market is still actively working off Q2's glut of DRAM inventory. The firm also said in its report that the DRAM spot market's sales momentum is waning as rising prices and falling supply of LCD panels cut into the available budget for memory in some PCs.

iSuppli said it now predicts that weak pricing in September will set the stage for further erosion in Q4; any increases that aided suppliers in the current Q3 will be erased as double-digit sequential price declines in Q4 are a very real possibility, the firm said.

"By reducing their output, DRAM suppliers have helped bring about higher pricing in the third quarter," Nam Hyung Kim, director and chief analyst for memory ICs/storage systems at iSuppli, said in a statement. "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."

The firm does say, however, that there is a light at the end of the tunnel for DRAM suppliers. According to iSuppli, suppliers' efforts to cut production starting in Q3 will play an important long-term role in strengthening the DRAM market. The firm said that 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 said it "remains optimistic" about DRAM market conditions in 2008. iSuppli said it  predicts global DRAM revenue will rise by 17.5 percent in 2008, following weak growth of less than 2 percent in 2007.