Market researchers at iSuppli Corp. has released a frank report on the memory industry outlining a supply and demand imbalance that the company believes will postpone a true recovery in profitability for the segment.
To be true, iSuppli noted that overall memory chip prices are expected to stabilize during the remaining quarters of 2009. After a 14.3 percent sequential decline in global revenue in Q1 DRAM and NAND flash, the market for these products will grow throughout the rest of the year, the company predicted. Indeed, combined DRAM and NAND revenue will rise by 3.6 percent in Q2 and surge by 21.9 percent and 17.5 percent in Q3 and Q4, respectively, iSuppli said.
“While this growth may spur some optimism among memory suppliers, the oversupply situation will continue to be acute,” said Nam Hyung Kim (pictured), director and chief analyst for memory ICs and storage at iSuppli, in a statement. “For example shipments of DRAM in the equivalent of the 1Gb density will exceed demand by an average of 14 percent during the first three quarters of 2009. This will prevent a strong price recovery, which will be required to achieve profitability for most memory suppliers.”
This painful oversupply has damaged some DRAM makers severely. Germany-based Qimonda, for example, filed for insolvency in January as part of efforts to reorganize the company.
iSuppli noted that due to a long-lasting glut of DRAM, the imbalance between supply and demand is "too great for this market to recover to profitability any time soon."
“Even if all of the Taiwanese DRAM suppliers idled all their fabs, which equates to 25 percent of global DRAM megabit production, the market would remain in a state of oversupply,” Kim said. “This illustrates that the current oversupply is much more severe than many suppliers believe—or hope.”
iSuppli pointed out that many suppliers have already cut capacity and said it believes another round of production cuts will take place in Q2. Those cuts will positively impact suppliers’ balance sheets late this year or early in 2010 at the earliest, iSuppli forecasted.
The company continued to report that average megabit pricing for DRAM will rise during every quarter of 2009, but that it will not be "even remotely enough" to allow suppliers to generate profits. "The industry needs a dramatic price recovery of a few hundred percentage points to make any kind of impact," iSuppli said.
While the picture in the NAND flash memory market is a little more complicated, it is not prettier. iSuppli said that while pricing for NAND since January has been better than the company had expected, it still believes this doesn’t signal a real market recovery.
Indeed, the company said that, with the notable exception of leading supplier Samsung Electronics Co., most NAND flash makers continue to lose money.
“While the NAND market in the past has been able to achieve strong growth and solid pricing solely based on orders from Apple Inc for its popular iPod and iPhone products, this situation is not likely to recur in the future,” Kim said. “Even if Apple’s order surge, and it books most of Samsung’s capacity, it would require a commensurate increase in demand to other suppliers to generate a fundamental recovery in demand.”
iSuppli said it doesn’t make sense for major NAND suppliers Toshiba Corp. and Hynix Semiconductor Inc. to further decrease their production if there is a real fundamental market recovery, which means supply will continue to exceed demand and pricing will not climb enough to allow the NAND market as a whole to achieve profitability.
Although the market remains challenging on down demand conditions in the consumer electronics market due to the global recession, the price rally occurred because inventory levels were reduced in the channel and re-stocking activity has been progressing. iSuppli said it will remain cautious about the NAND market until it detects solid evidence, not just speculation, of a recovery.
“Production cuts undoubtedly will have a positive impact on the market in the future. However, it’s too early for to celebrate. Supplier must be rational and watch the current market conditions carefully to avoid jumping to conclusions too quickly,” Kim concluded.
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