Equilibrium fundamental for a possible DRAM industry turnaround

DRAM spot pricing sustained its stable trend last week with limited fluctuation recorded. During the week July 22-28, DRAMeXchange records that price of 512Mb eTT was stabilized at US$0.86. Price of 1Gb eTT has appreciated by 1.1% from US$1.80 to US$1.82. In the branded segment, price drops of both 512Mb and 1Gb parts are kept at ~1% range, with the former closed at US$0.94 and the later at US$1.94.

Overall inventory at the spot market is still high. Despite traditional hot season is approaching, an absent of a critical demand recovery has led to a price discrepancy of approximately 20% between the spot and contract market. A sluggish DRAM demand at the spot market are because of the listed factors:

1. PC DIY market is exposed to severe pressure as demand has been suppressed by the consistently- growing NB demand alongside with larger memory content being installed per box (avg. at 1GB or 2GB).

2. Subprime mortgage contagion and inflation infect consumers’ confidence and whittle down consumption power.

3. Consistent expansion at DRAM makers, which the end market found no more excess capacity to digest the fresh output. Not only a possible bounce back is being curbed, but also ongoing price trend.

Except form Samsung, which still guides a 100% YoY bit growth, all major DRAM makers have scaled down their bit growth guidance, further cut capax or slow down new fab construction plan in order to get rid of the industry trough. But as production continues advancing, a possible price rebound will only emerge if vendors cut output or quit the market, as present oversupply eems having no effective solution yet.

Possible NAND Flash rebound only likely after Olympics

Leading NAND Flash makers Samsung and SanDisk recently held their respective investor conference for their 2Q performances. Since both of the big names, 2Q profitability performed weaker than expected, and that high crude oil price and inflation were weighing on consumption at key economic regions, they thus provided a conservative outlook for 2H. The conservative outlook has in turn been reflected in the corresponding NAND Flash spot pricing last week, as evidenced in the consistent weak pricing for most mainstream parts. Both sell and buy side at the market place have been discouraged by such a dismal market.

In the wake of the upcoming Beijing Olympics (August 8), China government is vigilant over electronics goods custom checks ever since May. A stricter crack-down of illegal white-box handset sales in the territory has also been enacted. Despite the Chinese government achieving its mission for social order safeguard and eliminated all activities that may tarnish the city's image, corresponding memory card demand for handsets is also being dampened.

Most players in the memory card industry believe that a demand recovery will only emerge after the games are finished. This also implies that a price rebound is only likely until then. Inventory levels among vendors, strength of re-stock demand from China and pre-stock procurement for 4Q, are key indicators for ongoing NAND Flash pricing.

NAND Flash contract price review in 2H July

2H July NAND Flash average contract price remains either stable or slightly declines. If compared to the great price fall in June, current price has shown more stabilized due to quarter-end strategic price-cut measures at the end of June. In addition,  Apple's  3G  iPhone remains best-seller in the market after launch in mid July has encouraged NAND Flash price and started to stabilize the pricing trend. However, NAND Flash demand outlook still remains unclear and most buyers are more careful with the inventory level when purchasing for stocking. We expect NAND Flash contract price to remain flat in the short term and is likely to gradually rebound with the coming peak period after mid-3Q08 accompanying with low price promotion on NAND Flash related products.