We have projected PC shipments to grow 16% in Q3, driven by back-to-school demand, DDR2 related new product promotions, corporate PC replacement as well as resuming procurements by European buyers after a long vacation and the world cup football.

However, as Intel had problems with Grantsdale chipset which is for desktop PC and postponed the planned launch of its DDR2 chipset, Alviso, which is for notebook PC, PC shipment growth in the third quarter seems to be weaker than what we had projected earlier.

Good news is that the inventory level of most PC OEMs was reduced to 2-3 weeks in June and July from 4 weeks in May since most PC OEMs scaled back their procurement in June to pressure DRAM makers to lower the contract prices. In addition, most spot channel distributors, module houses and traders, wary over sluggish demand, are keeping their inventory at less than one week.

In conclusion, we still expect an upward pricing trend for the third quarter, but revise down the peak prices we had projected. 1H August DDR 256MB contract prices are expected to rise slightly due to improved demand.

For DDR2, we project output to account for 7% of total DDR production and increase to 13% by the end of 2004. Samsung has been aggressively ramping up DDR2, according to its Q2 revenue conference call. It aims to take up 40% of DDR2 market share by allocating 12% for DDR2 in Q3 and 34% in Q4.

As most DRAM makers ramp up more capacities in 12 inch fabs and reach their mature yield rate in 0.11um process node, the DDR SDRAM market is expected to see an oversupply from the fourth quarter. However, the oversupply situation can ease due to the transition toward DDR 512Mb and DDR2 as a higher yield loss usually happens in the initial stage of the transition.

List 1 DRAM spot prices