The Battle of the contract price

DRAM makers

DRAM makers want to raise the 2H August contract price (the media reported increases of 5% to 10% for DDR products). The DRAM makers believe the price should be raised because:

1. Worldwide DDR output is still less than expected because of delays in technology migration. Worldwide DDR output was less than 40% of total output in July. However the ratio of PC models migrating from SDRAM to DDR was over 80%.

2. Relatively bad yield rates from micro-process (0.14um and 0.13um) migration is influencing/reducing the total DRAM output (especially on DDR).

3. We are in the traditional PC's peak season and therefore expectation of demand increases still exists.

Overall, DRAM makers are saying the supply of DDR remains tight and difficult to fully support the DDR needs of their OEM customers. Several major DDR DRAM makers have more negotiating power on allocating price and volume - becuase of their size and product mix.

PC OEM Companies

PC OEM are reluctant to accept increases in prices:

1) Although 3Q forecasts for QoQ growth of PC and Motherboard shipments is approximately 10 to 15%, the PC and Motherboard companies still have not received firm orders for September: End-demand sell through remains a major concern.

2. Recently HPQ has placed many orders after its restructuring, however, future cancelations or over/double-booking could be a potential risk in the near future.

3. Worldwide economic and PC retail selling figures have not given good indications of a positive Q3 and Q4.

Since the outlooks from the PC side are very positive, PC makers are trying to lower the total cost from PC componenents (CPUs, chipsets, motherboards and memory). Memory prices are not easy to increase.

Spot price - a tool of negotiating contract prices

Over the last few days, we experienced volatility in DDR spot prices. At the end of last week, prices raised up very rapidly so DRAM makers were in a better position to negotiate up contract prices with help from media reports. On Tuesday, we were also aware that some PC OEMs were selling some volume of DDR onto the spot market to restrain spot price increases in defense of rising contract prices.

Setting contract prices range from flat to up 5%

Our data surveys show us the contract price will rise just slightly from some DRAM companies. The more powerful suppliers like Samsung were better positioned for slightly less than 5% price increases. Also, newer suppliers like Nanya Tech and Winbond should also see some price increases. The rest of the big players, Micron, Hynix and Infineon, couldn't supply enough volume to satisfy customers - therefore they couldn't easy negotiate price raises because of their lower volumes / service - most of their contract price will remain flat.

Spot price trend looks slight up this week.

Over the remainder of this week, we sense the spot price will be slightly up because of sentiment of DRAM makers and marketers' expectations. The uptrend range probably will not be big though. Are marketers worring about risks of possible month end dumping next week? It's still too soon to tell as spot prices can change within several minutes.