Oversupply and plunging prices for DRAM and NAND flash have prompted iSuppli Corp. to downgrade its rating of near-term conditions for suppliers of such components to “negative,” from the “neutral” assessment the research firm has maintained since late March for NAND and since July for DRAM.

ISuppli noted that the global average selling price (ASP) for 512-Mbit equivalent density NAND flash is expected to decline to 46 cents in Q4, down 24% percent margin from 60 cents in Q3. Meanwhile, 512-Mbit NAND ASP increased by 8.4% in Q3 and by 6% in Q2.

Today’s statement from iSuppli comes after the firm in September reduced its forecast for global semiconductor revenue growth this year to 3.5 percent, down from its previous prediction in June of 6 percent growth, noting first half semiconductor industry weakness in part caused by a decline in memory IC revenue that was spurred by a drop in ASPs, which, in turn, was caused by a glut in the market.

“The major cause of the price decline is a continuing oversupply of parts,” said Nam Hyung Kim, director and chief analyst for memory ICs and storage systems at iSuppli, in the statement. “The oversupply is being caused mainly by the South Korean memory manufacturers shifting production capacity from DRAM to NAND.

“The present weak conditions in the NAND market contrast markedly with the strong performance posted in the third quarter,” Kim added. “Suppliers enjoyed a period of strong pricing in the third quarter. However, prices rose mainly due to reduced supply growth—not because of increased demand. iSuppli foresees no near-term recovery in NAND conditions, as the holiday build season draws to a close and sales stimulated by Christmas demand wane.”

DRAM down, but improving in 2008

ISuppli reported that “poorer-than-expected” Q3 earnings results and slower-than-anticipated seasonal demand this month prompted it to downgrade the near-term DRAM market condition for suppliers to negative, as well.

The firm noted that market prices have been deteriorating since September and have fallen to less than cash costs, which will likely result in most DRAM suppliers posting losses in Q4. The DRAM industry’s average operating profitability is expected to continue to be negative in the first quarter of 2008. This means the market will record four consecutive negative quarters on an average basis.

While remaining cautious, the firm predicted market conditions will slowly improve during the next few quarters with DRAM recovering first. However, NAND market conditions are expected to deteriorate through Q2, before undergoing a recovery in the Q3, iSuppli said.

“The DRAM recovery will be driven by the supply side, with inventory dwindling and growth in bit production decreasing,” Kim said. “This will cause availability to tighten and prices to rise. However, this scenario assumes suppliers’ behavior will be rational, and they will not engage in any massive production increases that could send DRAM pricing into a new dive. Any irrationality could drag out the market recovery.”

The firm noted that, with DRAM recovering more quickly than NAND next year, conditions in the memory market are the opposite of what they were in Q4 2006 when strong DRAM profitability prompted suppliers to ramp up production aggressively. This resulted in lower NAND production and rising prices, causing a market turnaround in Q2 of this year, before a slight DRAM recovery in Q3, iSuppli concluded.

By: DocMemory
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