Market Intelligence for the electronics supply chain

Staff Reporter -- Electronic Business, 11/15/2007

Editor's note: The content in "Market intelligence inside the supply chain" is from Converge, which has been an independent distributor of electronic components, technology products and supply chain services worldwide for more than two decades.

The Converge Market Intelligence team, made up of commodity managers and data analysts located around the globe, monitors and analyzes the daily pricing and supply and demand of high-tech commodities.

It provided the following market insights.

Memory update

As we approach the end of 2007, we reflect back upon a disappointing year for memory and a holiday build season when the market never gained any strength or momentum regardless of the numerous predictions about a possible turnaround.

Looking back, there were high expectations coming into the year, especially after 2006 finished with record highs for memory prices in the contract and spot markets. Once the 2006 holiday season passed, the market went into a pricing free fall. Aside from a brief uptick occurring in the middle of the summer of 2007, which we feel was based more on pure optimism than on true demand, the market has become one of the worst since the early days of fast page mode technology back in the mid 1990s.
 
Overcapacity by DRAM manufacturers is one major reason for the current state of the market. Many manufacturers were forecasting a big year in 2007 due to the release of Microsoft Windows Vista operating system. Various articles published in numerous publications late last year quoted many high-ranking representatives from Samsung, Hynix and other DRAM manufacturers alluding to Vista being a make-or-break platform for DRAM throughout 2007. Fast forward to November and the only mention of Vista is, “There’s always 2008.”

Without support from the corporate sector spending on new systems, the market has remained in a severe oversupply situation throughout the year. We are once again in a situation where pricing is no longer an issue. Pricing has been stable for a few weeks now with 1G DDR2 around $20 and 512M DDR2 at $11. Both are at a level that DRAM experts would never have anticipated, not now or at any point during the last 11 months.

As we wrap up the final months of the year, we look to the future and say, “There’s always 2008.”

CPU update

Independent or open-market CPU trading is more often than not driven primarily by supply instead of demand, and historically such trading has not been in parity with any economic trends.

The majority of the volume we are currently experiencing comprises slightly trailing-edge technology, consisting of mainstream Intel and AMD desktop processors, delivered at a cost savings to PC manufacturers. Additionally, builders and repair sites have been looking to the open market to procure hard-to-find CPUs due to obsolescence or simple shortages created by the two major chipmakers.

Lately, the open market is following some trends closely mirroring consumer supply and demand. Open-market demand for AMD CPUs, for example, is beginning to resemble requirements for Intel CPUs. This is a new phenomenon. Granted, AMD has steadily picked up market share over the years, but the independent trading of AMD CPUs has quadrupled over the last two years.

Notebook processors continue to be dominant in open-market trading each month. In October 2007, mostly due to slight shortages of the Intel Merom T5500 and T5600 notebook processors, trading of notebook processors approached 50% of all CPUs purchased at Converge. If measured three years ago, the ratio of notebook to desktop CPUs would have been significantly lower.

The open market has always been slower to transition than standard supply channels, but as laptop builders have faced increased demand, they have found themselves relying on the open market. Generally, after successfully using the open market to keep assembly lines rolling, a buyer typically will begin to pay closer attention to this supply channel to monitor possible cost savings offered.

General IC update

The following parts may be experiencing shortages and delays in the following areas:
Ceramic capacitor supply has tightened significantly over the last several weeks. Shortages are primarily with high CV caps across multiple manufacturers.

Tantalum capacitors have also experienced a slight increase in demand, primarily as an alternative to ceramics that are in short supply. After the tantalum shortage of 1999–2000, many manufacturers switched to ceramic capacitors. The increase in tantalum capacitor demand may signify a deeper issue within the ceramic capacitor supply chain.

Freescale processors in the MC and MPC family are still experiencing spot shortages, with some extended lead times.

Microsemi military diodes (JAN, JANT and JANTX) are still short, with lead times on some parts more than 60 weeks.

TI/Burr Brown Op Amps are still short, with many Analog Devices crosses also becoming short.

Storage update
 
Desktop drives
The demand for 80-GByte through 400-GByte HDDs remains strong. This is true for both the IDE and, especially, the SATA interfaces. The 80-GByte pricing has increased month over month, with limited quantities available at $43–$45 each. Meanwhile, pricing for 750-GByte and TByte drives is on the decline.

Notebook drives
We continue to see regular production requirements for 80-GByte to 160-GByte 5400-RPM SATA 2.5-inch HDDs. Customers are seeking cost-savings opportunities, as product appears to be readily available in the market. However, demand for the PATA equivalent of the aforementioned capacities is tapering off. There is still significant activity among the lower-capacity drives in the trailing-edge and wholesale markets. This is especially true of the 40-GByte and 60-GByte capacities in both the 4200-RPM and 5400-RPM speeds. Mobile HDD in the 10-GByte capacities and lower are slow moving, primarily with part number–specific demand in the service space.
 
Server drives
There has been little change in the server market since our report last month. The migration from SCSI HDDs to SATA HDDs continues, with the 250-GByte through 500-GByte capacities remaining the most widely consumed. Activity around SCSI HDDs is most prominent in the service space.

For the October "Market Intelligence for the electronics supply chain" report, click here.