Amid sluggish demand for PCs, iSuppli Corp. has downgraded its rating of near-term DRAM market conditions for suppliers to “negative” while maintaining its negative rating for NAND-type flash memory. As of the end of January, DRAM spot market prices had been sliding for three consecutive weeks and iSuppli’s DRAM market index reached its lowest level since the week of Aug. 28, 2006.

Despite the upcoming release of Microsoft Corp.’s new client operating system, Windows Vista, iSuppli does not believe it will be responsible for any significant PC sales growth in the first quarter of 2007. In fact, it seems many companies are taking a wait, see and evaluate approach to the upgrade, rather than jumping in with both feet.

More than likely, this will continue to be the case until the release of the first Service Pack (SP1) for the operating system, which will repair a number of the issues found since its release. According to motherboard makers, PC OEMs and other channel traders, DRAM prices are expected to continue to slide during the near term due to delayed Vista adoption among corporations.

iSuppli is also cautious regarding its second-quarter DRAM market outlook as there will be a large influx of supply coming, especially from Samsung Electronics Co. Ltd., which is expected to increase its quarterly output by about 30 percent during the seasonally slow second quarter.

No flash in the pan

Due to a lack of consumer demand in the seasonally slow first quarter, NAND flash prices continued to slide at the end of January. Prices for 4Gbit and 8Gbit NAND flash declined to $4.6 and $7.3, falling by 11 percent and 7 percent, respectively. Early in 2006, iSuppli predicted that the 8Gbit NAND price would reach $8, representing a price decline of 80 percent, by the end of 2006—a forecast that turned out to be accurate.  

iSuppli doesn’t expect any direct impact on NAND from Apple Inc.’s iPhone launch in June. Even if Apple sells 5 million phones this year—an unlikely scenario—it will account for only 4 percent to 5 percent of the NAND shipments in 2007. Because of it high pricing, the iPhone is expected to be adopted only by Apple enthusiasts initially. However, the iPhone’s aggressive NAND flash adoption could stimulate intense competition in the music-phone market, resulting in higher flash demand from handset makers. However, there is no near-term momentum driver that could change iSuppli’s negative near-term market rating.

Tougher memory market conditions are expected in the first half of 2007 resulting in memory suppliers’ profitability likely being diminished in the present quarter. However, iSuppli believes reasonable profitability will persist as prices have remained steady throughout 2006.

With sluggish near-term demand from the PC market, suppliers will need to diversify their product lines away from DRAM. This contrasts with 2006, when focusing on DRAM was a winning strategy for memory suppliers.

By: DocMemory
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