:: Spot was weak but a surge is foreseeable

Eventually the back-to-school buying season doesn't disappoint the marketers. After a quiet month, the emerging demand from end users finally appears. However, the majority of the demand goes to PC OEM rather than the clone market. As we mentioned earlier last week, given the characteristics of lower price, high spec, flexible accessibility and reliable warranty, it gives end users sufficient incentives to switch to the branded PCs, which has indirectly squeezed the size of spot market (see figure I). Nevertheless, we still believe the spot price is likely to rebound and 2H September or 1H October are probably the last chance to see a price surge since the price premium between DDR 256Mb spot and contract is increasing, which is attractive for arbitrage (see figure II).

Figure I-DDR Contract vs. Spot in 2003

Figure II-DDR 256Mb Contract vs. Spot Price

:: Will the budget constraint eliminate a rally in the contract market?

Currently the contract price for DDR 256Mb stands at USD42.5~USD45. In other words, the present DRAM contract price level has hit the historical high in terms of memory content per box for mainstream PCs. Normally, 10% of system cost in DRAM is the upper bound for PC OEMs. Taken the budget and current DRAM sufficiency into consideration, we expect the contract price for the second half of Septmber is likely to remain flat or a slight up.