Demand for DRAM did not recover after the Beijing Olympics. Memory module makers, realizing that their expectations have failed, are starting to initiate price cuts in China. According to DRAMeXchange, the price of DDR2 1Gb eTT dropped by approximately 7% within a single day to US$1.51, marking a new record low since November 27 (at US$1.57). The price of DDR2 1Gb eTT declined by 20% throughout August. And the price of branded DDR2 667 1Gb also dropped to a new low at US$1.65 in the same period.

Some industry players believe the 10% sequential DRAM contract price drop in 2H August was due to to a noticeable drop in PC OEM demand. Amid a weak economic trend and unclear demand visibility for Christmas, PC OEMs have started trimming their inventory from a 6-8 week amount. Some orders were even said to be cancelled. DRAM makers thus have no alternative but to lower their price further. Given that the downward price trend is solid, prices should hit bottom in October.

After seeing prices plummet in early 2007, DRAM makers have still failed to see their average selling price (ASP) rise above cost, even though pricing has shown some temporal rebound or stability. Thanks to pre-stock procurement among PC OEMs and traders, prices appreciated by more than 20% in 2Q 2008. Some DRAM makers thus expected to swing from loss to profit, in anticipation that the upward price trend would be sustained.

However, spot prices later posted a sharp fall in early July, followed by a weakening contract price trend in late July. While prices seem having no upside catalyst in 3Q 2008, inventory clearance pressure is intensifying on an eroding demand. When more industry players expect a supply trim to drive prices upwards, DRAM makers have no way back but to continue expanding and shrinking design geometry.

Analysts from DRAMeXchange indicate that in addition to increased output from 50nm generation migration, new camps are also expected to fill the market with fresh capacity. Nanya, which has forged a partnership with Micron, is expected to add an extra capacity of 30k per month at its Fab 3 during the second phase of production. Fab 2, which is scheduled to be remodeled as a 12-inch fab, will also contribute another 45k of capacity. Rexchip also has plans to expand capacity at its R2 to 30k in 2009. And Elpida will also tie up with UMC and Suzhou Venture Group (SVG) for a 12-inch wafer fab in China. The aggressive expansion plans imply that oversupply will continue weighing on DRAM makers' profitability in the near term. Under such an industry trough, market mechanisms will edge out those players with poor cost structures.

By: DocMemory
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