The DRAM market finally is showing some signs of improvement, prompting iSuppli Corp. to upgrade its rating of near-term conditions for suppliers.
iSuppli is raising its DRAM rating to “neutral,” up from its “negative” assessment issued in November 2007.
iSuppli’s neutral rating comes with a positive bias regarding future conditions for the market, given indications that the worst is over for DRAM suppliers.
DRAM market conditions since the beginning of 2007 have been characterized by oversupply, bloated inventories and weak pricing. The average megabyte DRAM selling price is estimated to have dropped by 17 percent in the first quarter, following a 31 percent decline in the fourth quarter of 2007. While still an above-average decline in the first quarter, the slower rate of decrease indicates the market now is bottoming out.
Amid reductions in channel inventories, and lower levels of expected capital spending among memory manufacturers, the supply/demand balance is coming into better alignment, a development that should bolster pricing. Per-megabyte DRAM prices will rise by 2 percent during the second quarter, iSuppli projects.
For the DRAM suppliers, their inventory/sales ratio is at about the 0.7 to 0.8 level, meaning that their stockpiles are equivalent to 70 to 80 percent of their sales This is far above the healthy range of 0.4 to 0.5.
DRAM suppliers early this year said they plan to cut their capital spending on production capacity by about 40 percent in 2008 compared to 2007. But 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. This should cause capital spending for the industry as a whole to decline by more than 50 percent in 2008 compared to 2007.
Although iSuppli has upgraded the near-term rating to neutral, there are still many risks associated with the suppliers’ high inventory levels. Until iSuppli detects reasonable inventory reductions among suppliers, it won’t upgrade the near-term condition rating to positive.
A temporary NAND rally The troubled NAND market received some slightly positive news with word of a price rally in the spot memory market. However, the fundamental underlying market conditions have not changed significantly. iSuppli predicts the current spot market price rally will be short lived.
