The market of dynamic random access memory (DRAM) is a complex eco-system, where each player has to find a right balance of manufacturing costs, production output, capital expenditures, bit growth and other things to stay competitive. While typically DRAM makers cannot ensure that the prices favour their business all the time, some analysts believe that they have good chances to do so next year.
Average spot price of 1Gb DDR2 667MHz (128MB PC2-5300) memory chip dropped from about $4.5 in January to $1.6 in late November this year, according to data from DRAMeXchange, a market tracker company. The same industry observer claims that contract price of 1Gb DDR2 667MHz reduced from $3 in early October to $2 in early December, a substantial decline in a relatively short period of money.
The reasons for such declines are well known by DRAM manufacturers: as personal computer makers were stockpiling memory for holiday sales hike, the prices remained on relatively high level, but as the demand towards DRAM fell, the prices dropped too, which is a negative situation for companies like Samsung Electronics or Hynix Semiconductor, who control about a half of memory market on the planet.
But DRAM producers may reduce the amount of memory produced and increase the pricing, which they did a couple of weeks ago. As a result, 1Gb DDR2 667MHz now costs $2 on the spot market, claims DRAMeXchange, who says that memory manufacturers are well positioned to control the prices in 2008. There are several reasons for successful execution of the strategy:
- Taiwanese DRAM makers announced plans of reducing capital expenditure next year.
- Qimonda has announced its plan to reduce production in its European operation so production output from its European operation will reduce to 30% of total production from 40% currently.
- The slowdown in 300mm wafer capacity expansion and the continued decrease in 200mm wafer production capacity.
- Global DRAM supply bit growth is set to decrease from 92% in 2007 to 57% next year.
“From the market perspective, when prices fall below the variable cost, it becomes highly possible for major DRAM manufacturers to reduce their production volume in spurring prices to rise. Samsung and Hynix in combination own nearly 50% of the global DRAM market, once they or other DRAM makers decide to reduce production, we will then see a chance for DRAM market to reach a balance between supply and demand next year, and potentially a rise in DRAM chip price instead,” a statement by DRAMeXchange reads.