Chip market tightens, allocations already begin
By Staff -- Purchasing, 11/4/1999
For the first time in three years electronics buyers are starting to hear the dreaded "A" word: allocation. Semiconductor supply has been tightening for several months, and flash memory chips are the first integrated circuits (ICs) to go on allocation. Prices are on the rise as well. Spot market tags for a 16 megabit (Mb) tsop flash chip increased from about $10 in the second quarter to $28 in the fourth.Flash is in short supply because of booming demand from the telecommunications industry, especially from cellular phone manufacturers. Cell phones are the single biggest consumers of flash. In addition, for the past three years flash was in oversupply and prices were low. Because of low revenue, flash manufacturers did not invest in new capacity. Upshot: Lack of investment and rising demand will create shortages and higher prices through much of 2000.
While flash is the first semiconductor to go on allocation, it won't be the last. Shortages of dram are just around the corner for the same reasons: Increased demand and a lack of capacity investment. Some 64 Mb dram tags have risen from $6.00 in the second quarter to $18.00 in September on the spot market. Contract pricing increases have increased to about $7.75. Part of the increase on the spot market was due to the Taiwan earthquake in September that shut down foundry production. But most of the increase was due to demand outpacing supply, at least for certain dram densities and organizations. "We believe there has been under investment in memory," says Jim Feldhan, president of Semico Research. He says as a result the dram market will tighten further going into 2000, and there will be more widespread dram shortages in the second half.
"Supply cannot meet demand," is how Avo Kanadjian of Samsung describes the current dram market. "Our capacity utilization is at an all-time high. All my product lines are fighting for capacity allocation," says Kanadjian, senior vice president of memory marketing.
As a result, dram prices are rising. Some dram tags have more than doubled on the spot market. An 8x8 64 Mb sdram had risen 25% to about $10 on the spot market in September and to $8.00 for OEM contract prices, according to Kanadjian. He says the overall average contract price for a 64 Mb dram was about $7.75 in September, but would rise to $8.50 in 2000, then stabilize.
Supply of other semiconductors will also tighten next year. Buyers should keep an eye on the programmable logic market. "The programmable logic market is on the rebound," says Feldhan. "We see shortages in that area. Demand has been up about 25% and will accelerate."
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