Spot price likely to fall below $3 this week.

:: Motherboard shipments to drop 10% in May.

The impact of SARS, particularly in China, will accentuate the traditional bottoming out of motherboard shipments in May. Shipments are expected to decline around 10% on-month. Micro-Star International (MSI), the market leader in China, is predicting a 10-15% drop in its total mobo shipments. Asustek Computer and Gigabyte Technology, respectively second and third in China, also expect shipments to decline at least 10%. The industry expects improvement in June.

:: Module makers turning conservative.

Module makers are turning conservative as sluggish sell-through is reflected in decreasing sales. They are currently reducing DRAM purchases to hedge against inventory losses.

:: Traders seeking low prices.

Traders look for arbitrage opportunities whether prices are trending up or down. At low enough prices, it is time for them to stock up. We expect they will jump in at a price level of around US$2.50-2.80.

:: DRAM makers insisting on raising contract prices.

DRAM makers are still insisting on a rise in contract prices for next month and the second half. However, we do not feel market sentiment will provide support for rising prices as spot prices continue dropping daily. Despite claims that consolidation in the DRAM industry will reduce the number of qualified suppliers, the current ample supply does not support a price rise. PC OEMs may accept higher prices but are likely to reduce volume below their original forecasts, creating an inventory build-up at DRAM makers.

:: Pressure on spot prices to drop below US$3

As worldwide production flows into the spot market, we do not see any support for the US$3 benchmark for 256Mbit DDR. As prices tumble, the only good news is that traders will begin to move and transaction volumes may grow. If this does not happen, the market will continue to stagnate.