Faraway the profit-draining price battle issue anymore

The price war comes down to, "How much of your own revenue are you willing to sacrifice to hurt a competitor?" said Dean McCarron, principal analyst at Mercury Research regarding the competition between Intel and AMD. Intel and AMD may be deciding that enough is enough after a recent round of particularly bruising price cuts, he added. How about DRAM market? After most companies reported heavy losses in their second-quarter and half-year earnings results, how will they do? Will they claim together "Enough is enough"?  Probably not so soon.

1.       The DRAM market has many more players: While there are several major DRAM makers who dominate most of market, there are only 2 major chipmakers, Intel and AMD. Competition among DRAM makers is still more like a free market. This competition situation cannot be easily coordinated without further agreement and full trusts. There was news that Micron and Infineon people did fly to Korea for "dealing with" the oversupply problem with Korean companies at the early part of this year. But they did not come out with any agreement, mainly due to the Korean companies’ last experience. Three years ago when Sumsang, Hyundai and LG cut back output, Micron took advantage to gain market share. There is less confidence for coordinating a cut in output together this time. Also there was news of a secret meeting hosted by Taiwanese DRAM companies in Taipei in early July to coordinate a cut in output or at least try to hold the line on prices. News sources also reported that most of makers did not really believe that it could work out since Taiwanese makers do not have enough market share to influence market price.     

2.       The problem is not just over-supply but Doom and Gloom Demand: The sluggish demand does not help to digest the increasing supply resulting from die shrink even though some of companies have cut partially inefficient product lines or have re-allocated product mix to avoid further losses. Most important is that there are still lots of excess inventory.

3.       Looking forward to the fourth quarter: Despite a less-than-rosy outlook for the beginning of third quarter, most of makers still hope for an improvement in the market at the end of third and fourth quarter, although they all know this year will not be a good year. Even a slight increase in price would be better than the current slump. In any case, DRAM makers have seen the downtrend and up-trend before, and they are not easily frightened although this is the worst price decline they have seen so far.