May began with a fire at the Taiwanese fab ASE Chungli, and the market showed some enthusiasm trying to repeat the 1999 scenario since the setting was roughly the same: against the background of extremely low prices, there appears a certain factor that restricts the supply (it was the earthquake on Taiwan back in 1999), and the prices shoot up by tens of percent.
They did shoot up right after the news, but the enthusiasm was rather misplaced. Everything got back to the norm even before the evening of the same day. The prices did grow up a little as a consequence, and May began at $2.41 for a 256Mb DDR400 chip. But considering that the entire beginning of May, from the 1st to 10th, is the so-called Golden Week in Asia with all its festivities, the memory prices stood motionless throughout the first decade of May. The price of a 256Mb DDR400 chip just lowered to $2.38 which was an indication of the close-to-zero activity on this market then.
After the holidays were over, the traders got back to work and pondered where to move the market further. They had little difficulty in choosing the route. In view of the low demand and low volumes, the market went the traditional way, i.e. downwards. As a result, the price of a 256Mb DDR400 chip had sunk to $2.31 by the 13th of May and stopped there for a while. A few days later it went lower still, reaching $2.25 for a 256Mb DDR400 chip and thus getting below the manufacturing cost for a majority of DRAM makers which is about $2.5 for a 256Mb chip.
So, this price reduction might have been over 6 percent in a single month, if it were not for a slight correction which returned the price back to $2.31 during the remaining week. I wouldn’t say that this changes the overall picture much, though. It’s clear that the memory makers suffered losses in April and May and now have to reduce their DRAM production or transfer their production facilities to flash. They of course prefer the second way, but it already makes no difference for DRAM: the supply of DRAM chips is expected to shrink a little in the near future and the price will rise up closer to $3 per a 256Mb chip.
The ongoing transition of the manufacturers to DDR2 intensifies the situation somewhat: the share of this memory type is approaching 30% with many major makers and will have probably reached 50% from all produced DRAM chips by the end of the year. Things going this way, with the demand remaining rather conservative and focusing on DDR, and with the manufacturers actively taking up DDR2, we may encounter deficit of DDR accompanied with overabundant supply of DDR2. A curious fact, for the first time in this year the contract prices on 256MB PC3200 modules grew, although very little, from $21.2 to $21.4, at the end of May…