After a mild recovery in Q2, the global DRAM market is again showing signs of weakness, with prices expected to fall during Q3 due to bloated inventories, according to El Segundo, Calif-based market research company iSuppli Corp.

The company reminded that after it upgraded its rating of near-term conditions for DRAM suppliers to “Neutral,” up from “Negative” in late April, the market bottomed out and manufacturers’ profitability improved during Q2 with a few top-tier suppliers managing to attain profitability starting in June, following months of losses, and a handful expected to do so in Q3.

But now, iSuppli said in a report, the market is showing renewed warning signs, with OEM contract prices for DRAM likely to fall this month and next month. The main question now facing the industry is how much prices will decline during Q3, the company noted.

“The average DRAM contract price is expected to decline by more than 10% from the current level by the end of the third quarter. The inventory level in the channel and among PC OEMs has increased compared to the second quarter. Global economic conditions are adding more uncertainty on the demand side of the equation,” predicted Nam Hyung Kim, director and chief analyst for memory ICs at iSuppli, in a statement.

Adding to the industry’s woes, DRAM shipments exceeded expectations in Q2, causing prices to decline in Q3. iSuppli said it believes DRAM unit shipments increased by 15% sequentially in Q2, compared to Q1 -- higher than the anticipated 10% rise.

“The higher-than-anticipated increase in unit shipments in the second quarter signals that excess-inventory is being shifted from the DRAM suppliers to the buyers,” Kim noted.

As such, iSuppli maintained its “Neutral” rating for DRAM market conditions for suppliers at this time but stressed that it will continue to watch near-term developments in market fundamentals to determine if a rating update is required.

In order for the DRAM industry to bounce back from its current malaise, DRAM suppliers are now reducing capital spending levels, which will eventually cause supply levels to become more constrained and prices to rise — leading to a recovery, albeit a slow one, in the industry.

iSuppli predicts DRAM wafer output to rise by a small margin of just 10% next year, compared to 40% in 2007. At the same time, the company said the top 2 DRAM suppliers, Samsung Electronics Co Ltd and Hynix Semiconductor Inc, are engaging in an aggressive migration to the sub-60-nm manufacturing process, boosting their output and raising the risk of further oversupply that may linger into the first half of next year, which could delay a market recovery until the second half of next year.

In late April, iSuppli predicted the NAND flash memory spot market price rally that occurred early in Q2 would be short lived, a forecast that proved to be correct.

Further, after iSuppli cut its NAND flash forecast early this year, the market has been mired in terrible conditions, primarily due to a major inventory overhang and weak consumer spending that has led to oversupply, but since then suppliers have been adjusting to the oversupply, which should bring the supply/demand equation back into balance by Q4, iSuppli expects, meaning that the NAND flash suppliers will suffer for one more quarter before pricing should begin to recover.

By: DocMemory
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