ISuppli Corp. has downgraded its near-term rating of DRAM market conditions amid news of continuing price declines, swelling inventories, increasing supplies and flat demand.

Pricing for 256-Mbit Double Data Rate (DDR) SDRAM this week fell to less than $5 on the Asian spot market. This appears to validate iSuppli's recent prediction that prices for 256-Mbit DDR soon would drop to the $4.50 level.

Inventory held by DRAM suppliers has increased to four to five weeks, up from one to two weeks previously. Demand is flat to weak, in line with normal seasonal trends. Furthermore, global economic conditions are not favorable for increases in IT spending, with oil prices on the rise and stock markets on the decline.

As long as the outlook remains uncertain, PC OEMs will not be in a hurry to increase DRAM orders, iSuppli believes.

Another troubling sign for the market is that although prices are declining, they remain high, considering that most DRAM suppliers' manufacturing costs for 256Mbit DDR are less than $4 per part. For some suppliers, manufacturing costs for fully-loaded 256-Mbit equivalents are nearly as low as $3.

Because of this, weak demand is likely to further pressure prices in the near future. iSuppli predicts spot-market DRAM prices will continue to decline at least until the beginning of June.

In light of these factors, iSuppli has downgraded its view of near-term DRAM market conditions to "negative," down from "neutral" before. This marks iSuppli's second DRAM market downgrade this month; in the first week of May, iSuppli cut the market's rating to "neutral," down from "positive."

Can suppliers stave off further price decreases? While it's uncertain whether suppliers could accomplish this, they could attempt to prop up prices by limiting the amount of DRAM they release from inventory into the spot market. Furthermore, they could modulate output in order to prevent contract prices from sliding.

Overall, near-term DRAM market conditions appear to be shaky. Most suppliers' fiscal quarters end in June, tempting them to sell more DRAM to bolster their results. However, June is expected to be the toughest month of 2004 for suppliers, due to weak demand.

However, there is one silver lining in all the clouds gathering around the DRAM industry: the second-quarter downturn is paving the way for a market upturn in the second half of the year.

By: DocMemory
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