During the first week of March, pricing on DDR3 DRAM in the open market increased tremendously: over 15% on PC modules, 3-5% on server modules, and 10-12% on various discrete chips. Pricing in the direct channel increased on the same items as well, though to a lesser degree.We may wonder why this sudden upsurge in pricing is occurring now, during a normally quiet business cycle, and when all forecasts for home computer sales state that the demand should be flat or running at a negative during the 2013 calendar year. Aren’t the DRAM manufacturers keeping a good pace with all their products in order to alleviate excess inventory on their shelves yet still leave them prepared for any uptick in demand?
Apparently, not well enough.
Production cuts on DRAM chips in 2012 occurred in order to belay any excess inventory issues, but they left little wiggle room for upsurges in demand. New generations of mobile technology (smart phones/tablets) rely more heavily on cloud computer storage, instead of physical internal storage, causing cloud computing vendors to require more servers than expected. Recent capital expenditures from these companies have brought about unexpected server module demand. That, in turn, has forced module manufacturers to build more server modules and cut back the supply of generic modules for home computing, which has left those home computing modules tight within the marketplace, begetting a sudden price spike.
Several other factors will likely make matters worse in the next couple of months. First is the success of Samsung’s latest Galaxy, which increased their internal demand for the mobile DRAM used within that smartphone and forced them to reallocate some DRAM production capacity to help in their shortfall. Second is the eminent conclusion to Micron’s buyout of Elpida. Even with added capacity from Elpida’s lines, Micron’s output will not be enough to accommodate both sets of customers. Third is the eventual exit of Nanya Technology, the last of the Taiwanese companies creating new DRAM technology, from DDR3 development. Together, these factors have created a small, albeit perfect, storm of extenuating circumstances that have led to our current volatility.
Certainly, this large leap of price increases tastes of overreaction, a knee-jerk response to rumors and minor spot shortages. But the reality is, although computers aren’t selling like gangbusters and most tier 1 PC manufacturers seem to be getting enough supply to satisfy their needs today, there are valid concerns that, in late 2Q13 to late 3Q13, they will not have as dependable a supply as they need, and price increases will continue during that period.