DRAM market hits bottom; prices should rise

By Purchasing Staff -- Purchasing, 6/5/2008 12:44:00 PM

The global DRAM market appears to have bottomed out as revenue declined 7.4% to $5.9 billion in the first quarter from $6.4 billion in the fourth quarter, according to researcher iSuppli. In addition, DRAM revenue was down 39% from the first quarter of 2007.

With revenue declining, no DRAM supplier generated a profit, and losses were larger than expected.

If the market hasn’t bottomed, memory buyers could see DRAM supply disruptions because some suppliers are facing serious financial issues, and potentially could leave the business.

DRAM prices are set to rise slightly during the coming months, but will still be much lower than last year. The average megabyte DRAM price dropped by 17% in the first quarter, following a 31% decline in the fourth quarter of 2007.

"The average per-megabyte price for commodity DRAM has dropped by more than 80% during the last 12 months,” says Nam Hyung Kim, chief analyst at iSuppli. “Thus, in order to return to pricing levels from a year ago, suppliers would need to increase prices by 500%, boosting them to $6, up from $1—an impossible occurrence.”

Because of low prices, DRAM suppliers will be challenged to be profitable in the near future. “If poor market conditions persist for a few more quarters, some suppliers may face bankruptcy risks due to shortages of cash,” says Kim.

Others will severely cut back on capital spending. DRAM suppliers early this year said they plan to cut their capital spending on production capacity by about 40% in 2008 compared to 2007. However, due to a lack of profitability and diminishing cash reserves over the past several months, many suppliers won’t be able to afford spending even at such a reduced level, and may slash their capital outlays by an even greater margin this year.