The spot market momentum turned lackluster after Taipei Computex show beginning from June 1st 2004. Most module houses and channel traders have restocked before the show, therefore, the demand in spot market shank dramatically in past week. The average price of DDR 256Mb 32Mx8 266/333/400MHz dropped to $4.70, $4.70 and $4.78 respectively.

DDR 256Mb 32Mx8 333MHz dropped 27% from $6.49 on April 7 to $4.7 of today. Even the spot pricing performance was disappointing and demand was weak. Most market participants still hold positive view for the third quarter's pricing performance, according to our survey. They expect the prices will bottom out in late June and rebound to $5.5 to $6.0 in July, August. However, some marketers are pessimistic and project prices down to $4.0 in the end of June due to weak demand in past months.

1H DDR 256MB contract prices decreased around 4% from the $43 to $46 range to the $41.5 to $44 range. Most DRAM makers experienced the price cutting pressure from OEM customers due to the big gap between contract prices and spot prices. However, the PC OEMs' demand remained strong.
Some OEMs tried to get a long term deal on quantity commitment from DRAM makers by promising the procurement as a trade-off, indicating a stronger demand in the third quarter.

We remain our projection that spot prices will remain at low level until mid-June. We expect the demand will pick up in China market soon to support the prices. The prices may go up to $5.5 if PC demand increase 15% as expected; to $6.0 if supply remains tight.

Regarding supply side, most are suspicious on Infineon's next move as its previous CEO, Ulrich Schumacher, resigned unexpectedly and Dr. Harald Eggers,CEO, memory products business group quit in May. Whether Infineon will spin off and will it keep outsourcing policy is a big question in all DRAM marketers.

Currently, Infineon has three strategic partners : Nanya tech., SMIC and Winbond.

Inotera, a join venture of Infineon and Nanya tech. are speeding the ramp up. SMIC plans to pilot run in its Beijing 300mm fab whose production output mostly will be contributed to Infineon. Winbond has announced to reserve certain capacity to produce commodity DDR SDRAM to Infineon for the second half year.

Infineon's move will have a big impact on DRAM supply for the second half, especially for the fourth quarter. So far, the outsourcing partners provided less than 10% of Infineon's requirement. " It could go up above 10 percent by the end of the year. It depends on pricing environment " Senior vice president, Dominik Asam said at a conference in London on May 26.

If Infineon's partners commit the production per request, the total DDR SDRAM output providing by Inotera, SMIC and Winbond can go up to 10 to 15 million in 256 eqiv. Which is around 3% to 5% of total DDR SDRAM output. However, the contribution won't be significant until the fourth quarter.
Therefore, we still expect a shortage in the third quarter and a oversupply in the fourth quarter.