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Memory Update: Speed bumps to growth not deterring, only slowing some gains


Memory truism: Volatility.  Okay, with that necessary but obvious summary of the memory sector out of the way, let's see what's actually been happening.  Memory has been through a slog lately and finally some visibility is returning, affording us the opportunity to chart the recent changes and try to gain some insight.

With PC demands having slowed dramatically over the summer, of course memory and other mainstay components have felt the pinch as well.  The greater impacts to the PC supply chains have been the reconfigured market strategies to deal with a mature product at peak penetration rates in the mature economies (see, for example, this recent discussion by MarketWatch Commentary).

However, as traditional PC sales are easing, the robustness of smartphones and tablet PCs has yet to slow, only whittling the competitive landscape some.  The movement away from traditional PCs has added to the decline in DRAM pricing felt throughout the summer.  Coupling the demand weakness with improved yields due to new die shrink technology, it's just simply been tough for DRAM lately, with little easing in sight (see also this recent report from iSuppli). According to the recent iSuppli research, and cross-checked with other industry sources, although DRAM did not experience dramatic ASP declines in 1H11, the picture for 2H11 is not as positive with forecasts looking at close to "cash costs" for DRAM manufacturers:

"The third quarter is shaping up to be pretty bloody for DRAM makers," [Mike Howard, principal analyst, DRAM and memory, at IHS] noted. "The combination of inventory reductions by DRAM makers and more bits coming out of the fabs is resulting in a very soft pricing environment."

As much as a 15.9 percent increase in shipments is anticipated in the third quarter, and prices are not expected to firm up anytime soon because of that, IHS believes. (full comments available here from iSuppli)

Meanwhile, mobile memory is doing quite well, and NAND flash is holding onto gains as well.  With the changes in component demand due to end-product market changes, manufacturers have been decreasing production, holding rather than pursuing new CAPEX, and clearing inventory – all positive strategies that will help correct memory overall.

NAND flash pricing has stabilized over August and new product launches in September-October for tablet PCs, ultrabooks and smartphones are seen as the device boost that will help sustain NAND growth, according to some of the latest research by DRAMeXchange and confirmed by our industry sources.

Mobile DRAM is also seeing favorable gains as inventory curtailments have prompted some supply questions for some types because of wireless solutions' component demands.  These wireless solutions are, of course, directly related to the component lists needed to fulfill demand for the hot-ticket products, the smart wireless devices.

With NAND and mobile memory forecasted to remain in demand and DRAM seen as likely having bottomed already, visibility is returning to the ever-volatile memory sector.  However, time will be the true test of what is or isn't DRAM's bottom and the rest of memory's future, as well.  The wait-and-see for DRAM may best be summed up in these comments in this recent article from Reuters:

"DRAM has increased as speculators have been active in the market. We think DRAM pricing will turn back around at some point this week." [Avian Securities analyst Win Cramer said]

JMP Securities analyst Alex Gauna concurred, saying the DRAM price move did not mean much.

"It is too early to say one way or the other. We need to watch the market later in September."

Lisa Ann Cairns, Ph.D.
Written on Tuesday, 06 September 2011 13:42 by Lisa Ann Cairns, Ph.D.

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