Smith’s global inventory manager, Todd Banker, offers commodity expertise on the current trends in the memory market. Before he began leading Smith’s global inventory efforts, Todd served as the company’s global commodity manager for memory. Todd has over 25 years of industry expertise and has worked his entire career at Smith.
As part of an ongoing series, Smith’s thought leaders share their views on market forecasts and industry happenings.
“DRAM is in oversupply.” “Increased 3D NAND production is driving down pricing for NAND-based products.” “No delivery problems here!”
These are the main mantras we’ve heard in the memory market for the first half of 2019. You can find dozens of headlines on the web’s lead electronics magazines; multiple indices and analysts confirm the same information. Even the memory manufacturers themselves acknowledge the change in the production vs. demand ratio for their products. For the first time in two years, memory manufacturers are lowering their prices and battling for orders – not to gain market share, but to move product off their shelves.
It’s a memory buyer’s market.
With so much power in their corner, why would an end user turn to an independent distributor like Smith for help?
We believe for many reasons:
First and foremost, prices on the open market normally change more rapidly than the prices manufacturers dole out directly. The open market constantly tries to anticipate the next direct price, so its pricing structure is more volatile than the standard direct one. This pricing fluidity can help end users keep their standard vendors “honest” – or, more accurately, “aggressive” – by offering an alternative sourcing solution from motivated resellers trying to stay ahead of direct pricing. Also, while standard ASPs normally only change once a month, the open market often sees a continuous downward trend which begins with ASP announcement and flows until the next ASP announcement. So, if an end user is not ready to buy at the time of the new ASP but still needs to buy within the month, they might find that the later open-market pricing will be below the earlier ASP price they were given. Armed with that information, the end user can either save money by buying from the open market or pressure their standard vendor in a price reduction.
A second benefit of staying in close, continuous contact with a trusted distribution partner like Smith is to gain access to your distributor’s excess inventory, accumulated from end users of all sectors of the electronics spectrum and from the other users on that spectrum who are also using that part. Even in a non-shortage market, forecasting is imperfect. Whether due to an accidental over-forecasting of material, an unwillingness to cut order quantities, consumer fickleness, or an overbuy made to gain the advantage of an extended price break, there are many reasons an end user could find themselves with excess inventory. In a market moment when pricing is in a constant state of degradation, an end user with extra product on their shelf – possibly with more on order for the next month – would want to move that excess as soon as possible. Simply put, it will not be worth as much in four weeks’ time. Smith attacks this problem from both sides, working to pair an end user with needed excess with an end user who needs the same product.
A third benefit we provide is simple just-in-time solutions for intermittent shortages. While the memory trends are big and broad, there will be times when small shortages pop up. The estimated CAGRs in many sectors – medical, automotive, and AI, for example – continue to increase by double-digit percentages. Since computing products are the main concern for continuous oversupply, memory manufacturers are likely to tinker with their product mix and global allocations. Some products are likely to be overlooked or under-supported while this remixing occurs, and even general market or oversupply shortages can occur.
There are certainly other ways Smith can help end users, even in a buyer’s market, and we hope you will engage with us as a source for information and supply chain help. Samsung and Micron have both announced production decreases on NAND and DRAM for the totality of 2019. We could see various results from that in 2Q of 2019 and beyond. Smith will monitor the market closely so that we can help our customers with whatever needs they may have.
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