In June, many DRAM makers and market participants held out hope of a strong seasonal uptick after weeks of doldrums, thanks to solid back to school demand, new product promotions and a gradual growth in corporate replacement starting from late July or early August.

However, hopes of a pick-up in demand appear to evaporate now. So far, we haven't seen a clear sign of demand recovery. The bleak outlook is in stark contrast to the traditionally boom season in the second half of the year for other PC peripherals.

Intel's postponed launch of DDR2 chipsets has delayed the adoption of DDR2 and new platforms which were expected to stimulate demand in 2H 2004. Grantsdale which is for desktop PCs has been delayed to June 21st 2004 and was recalled earlier due to a flaw. Lindenhurst, used in servers, has been pushed back to late September from early June and Alviso, to be used in notebook PCs, has been delayed to early next year.

In addition, summer promotions in the Chinese market had failed to meet expectations and most Chinese PC OEMs and module houses have revised down their sales growth forecast for the third quarter. In the European market, demand is weak during the world cup football game and a long summer vacation.

PC OEMs usually build up their inventory with channels restocking starting from July and adjust the inventory down in October. However, we observed most PC OEMs increased their inventory to 4 weeks from late April due to worries over a supply shortage as migration to more advanced 0.11um haunted Infineon and other DRAM makers.

In June, instead of building higher inventory, many PC OEMs turn to cut their inventory level from June as they believe DRAM supply will keep increasing since most DRAM makers have resolved the 0.11um migration problems and ramped more capacity in 12" fabs. We observed some PC OEMs' inventory levels have been trimmed to below 2 weeks in early August.

Still, there're some positive signs to prevent DRAM prices from falling further. With strong growth in the notebook and motherboard sectors in the third quarter, a restocking in the European market is expected to start in early September. Most PC OEMs and channels hold lean inventory and Intel will cut the prices of its CPUs and chipsets to stimulate demand in late August and September.

However, falling UTT prices may drag down major brands' prices. Even some PC OEMs have increased their procurement quantities in 2H August, most DRAM makers still suffer the price-cutting pressure from some PC OEMs. Contract prices in 2H August for 256 MB DDR SDRAM are most likely to hold steady or drop slightly.

List 1 DRAM spot prices