- Upward trends in DDR pricing as back-to-school builds begin
- Thinning NAND flash inventory levels as SSDs increase consumption
The big story in the electronic components open market for 2007 thus far is the decline in DRAM pricing. In the months leading up to the release of Microsoft Windows Vista in Q1 2007, PC original equipment manufacturers (OEMs), electronics manufacturing service (EMS) providers, and their suppliers were hopeful that this new operating system would stimulate PC sales. The increased PC sales have yet to materialize, but participants in the memory supply chain may have reason to be cautiously optimistic.
Smith & Associates Memory Commodity Manager Todd Banker reviews the impact of consumers’ lukewarm reception of Vista, as well as other recent market trends and emerging technologies, on the open market – and offers a glimpse of what lies in store for the remainder of 2007.
Can DRAM Find a Driver?
DRAM supply was tight in 2006, driving prices up for much of the year. Memory manufacturers put product on allocation and prices climbed.
PC2-4200 512M and 1G UDIMMs were strong during the second and third quarters of 2006, then PC2-5300 512M and 1G UDIMMs took the lead during Q4. Spot market prices rose from $48 and $105/module respectively, to $70 and $140, before falling back to $45 and $105 by the end of last year.
During late 2006 and early 2007, some PC makers missed their retail sales targets, and DDR2 manufacturers caught up with deliveries. This caused prices to decline during January and February 2007, then level off in March. DDR2 prices continued to drop in April and several chip manufacturers found themselves overstocked as the expected surge in PC sales with the release of Windows Vista was not realized.
UBS Investment Research said in mid April that average DDR2 contract pricing was down 58 percent year to date, but noted that the current 8 percent spot premium indicated contract pricing might be nearing a trough. UBS noted that DDR2 spot material generally traded at a discount to contract during the first quarter of this year.
The Cleveland Research (www.cleveland-research.com) May Memory Report said the “…DRAM market continues to battle excess inventory throughout the entire supply chain.” According to the report, despite the fact that contract pricing is approaching manufacturing cost, OEMs are so focused on lowering inventory levels that most are reluctant to build inventories even when offered product below current contract prices.
PC OEMs are attempting to lock in pricing at current levels for their holiday build cycle without taking delivery of the stock. An ideal buyers market scenario: lock in prices at historically low levels, avoid inventory build up and carrying costs to enhance product margins.
Meanwhile, memory manufacturers have come up with their own strategies to offset the DDR2 oversupply. DRAMeXchange reported in mid May that Samsung increased the ratio of its specialty memory products from 25% to 35% in 1Q07, and is no longer allocating recent capacity expansions to DRAM production. Other DRAM makers are following a similar path and/or boosting production on 1Gb chips that command a better price.
Early adopters of Windows Vista are finding that the operating system runs much more efficiently on a PC with 1 to 2 Gb of memory. Chip manufacturers are hopeful that as use of Windows Vista proliferates, memory upgrades and sales of PCs with larger amounts of memory could balance inventory in the channel.
DDR1 and SDRAM prices were steady for the first quarter of 2007. Supply in these products has been balanced to tight as production levels have been reduced to coincide with steady demand. Legacy PC upgrades, as well as television set-top boxes and other consumer electronics continue to account for the bulk of SDRAM and DDR1 sales.
Emerging Technologies… Here in a Flash
Cleveland Research stated in its May Memory Report that in response to weaker than expected DRAM orders, memory suppliers are converting DRAM fabs to produce more flash memory. Consumer electronics remain the driver for flash memory sales. Continued advances and heavy consumer demand for cellular phones, PDAs, hand-held PCs, MP3 players, video games, and similar devices have kept the flash market healthy. Demand for large capacity solid state drives using flash memory is also likely to increase as their use in laptop and desktop PC applications advance.
For the first half of 2006, the NOR flash market was pushed by a combination of short supply of Intel Strataflash NOR chips and a change to updated die revisions. As a result, open market prices rose to near twice contract pricing. At the beginning of Q3 2006, NOR flash supply caught up to demand, and open market prices fell back to parity with contract pricing. Spot shortages from end users persisted through the end of last year.
Cleveland Research’s April 11, 2007 Memory Survey stated that NOR spot pricing fell 14 percent from mid February to mid March, marking the first spot declines in nearly two years. Cleveland Research’s May 4, 2007 May Memory Report said NOR pricing remains under pressure due to softer demand and excess inventory in the channel.
NAND flash supply was plentiful in early 2007, causing prices to decline. As Q1 drew to a close, however, NAND supply tightened and prices began to stabilize. In particular, 8GB and 16GB NAND supply have become scarcer, causing prices to increase since mid March.
Multi-level cell (MLC) flash has traditionally been slower and cheaper than single-level cell (SLC) technology. However, MLCs are gaining market share in light of the options available for ‘stacking’ the MLCs to gain density. With specialized controllers, MLCs’ performance can be improved to make them as fast as their SLC counterparts, but MLCs are available at a lower price.
Lower pricing has made 8GB and 16GB MLC models increasingly popular, and some manufacturers are increasing production. Intel Corporation and Micron Technology, Inc., recently announced that their NAND flash memory joint venture, IM Flash Technologies, has begun sampling 50 nanometer (nm) MLC NAND flash memory. Look for MLCs to be the focal point of NAND chip manufacturing, with pricing remaining relatively stable through the rest of 2007.
Solid Potential for Solid State Drives
Among the most promising applications for MLCs is Solid State Drive (SSD) technology. Dell recently introduced solid state drive options on two notebook models, with an upgrade cost of roughly $450. Macworld UK reported in mid May that Apple is also planning a new notebook that will use solid state flash memory. AppleInsider says the ultra-portable 13-inch MacBook will be lighter and thinner than existing MacBooks.
While early adopters of this new technology will pay a premium, they will enjoy the rapid boot times and extended battery life achievable through solid state storage. SSD prices are likely to drop and capacity to increase as flash memory technology matures. Currently, the maximum SSD capacity is 32GB, but Toshiba and Samsung have released 16GB flash memory chips, so more rapid innovation in solid state technology is forthcoming.
Open Market Outlook
With large amounts of excess DRAM inventory currently in the channel, PC OEMs appear to be scheduling orders for less than 100% of their forecast demand – hoping to purchase a portion of their future requirements as opportunistic spot buys below contract pricing.
As always, the open market will play a key role in working excess inventory through the supply chain to balance the DRAM market. Smith works closely with our customers to schedule purchases when they will receive the best pricing, and to maximize returns on their unconsumed inventory.
As NAND supply balances out this summer, OEMs will have opportunities to lower direct costs on mid-range sized NAND flash discretes through open market purchases, or to fulfill shortages in lower density NAND materials that tend toward tighter supply.
Buyers can take advantage of open market opportunities in memory and other commodity components by working with a Smith & Associates representative to maintain optimal inventory levels and purchase or resell product in advance of shortage or oversupply situations.