Turnaround or inventory build-up: End-user demand to decide

:: The worst is over?

Many players now perceive the end of the tunnel approaching, with bright lights just ahead. The retail channel, including shopping malls, has reopened in China and replenishment demand is picking up. The introduction of more frequency options in the product mix is giving DRAM makers a viable means to maintain DRAM ASPs and improve their financial reports. Intel has launched the Springdale platform, creating demand in a new DRAM product segment. Overall, players expect a turn around imminently.

:: Traders seek short-term opportunities

With insufficient first-tier branded 333MHz and 400Mhz DRAM available on the open market, traders have been turning to alternative sources and confidence in the potential profits from short-term trades has picked up. As the traders move in, turnover has picked up and prices have begun to rise. This should enable the DRAM makers to hold their prices and control shipments. The traders are just focusing on 333MHz and 400MHz, not 266MHz.

:: First-tier modules in high demand

Motherboard test results seem to indicate that Springdale boards running first-tier modules offer stable performance; second-tier and OEM branded modules do not. Volumes from vendors offering qualified 400MHz DDR in the contract market remain limited, and first-tier brands, currently in high demand, may face allocation problems in June. This may lead to rising contract prices.

:: Springdale to take over from 845

The motherboard market is faced with a pricing dilemma. The FOB price of Intel 845 boards is about half that of Intel 865 (Springdale) boards (US$45-50 versus US$90). As the 865 chipset price drops, the board prices will fall to US$80 in June, but a large price gap will remain. In June, 865 boards are expected to make up 25% of shipments, with this proportion rising as VIA Technologies, Silicon Integrated Systems (SiS) and ALi increase their output of 865-equivalent chipsets. In the next 12 months, everyone expects dual-channel 800MHz FSB (front-side bus) boards to be the mainstream option. As inventory of 845-based boards is cleared out, demand for 266MHz DDR should pick up, although we are not yet seeing the motherboard companies promoting this.

:: Profit taking may lead to inventory build-up

With prices expected to rise, profit should kick in once the US$3.70-4 level is reached. If the market outlook remains positive, it will support a second round of price rises. However, without a visible pick up in end-user demand, the worldwide inventory situation needs to be closely watched.