Pricing for dynamic random access memory (DRAM) is set to increase as a key indicator shows that inventory levels are falling relative to demand, according to an market tracking company. Declining stockpiles of DRAM indicate that supply is coming into better balance with demand, resulting in stabilization of pricing as well as increase of pricing.
As Inventory Levels Decline, Prices Raise
The steady upturn of the DRAM market is reflected in the current weeks of DRAM inventory index, which dropped to 11.6 weeks in the first quarter this year, down 4% from 12.1 weeks in Q4 2011. It was the second consecutive quarter of improvement since the index hit 12.9 weeks in the third quarter last year. The decline also represents a significant turnaround from the major increases in the indices that ruled during most of 2011.
Average pricing for DRAM in the 1Gb-equivalent density is preliminarily estimated to have risen by 1.5% in the second quarter, and is then set to climb by 7.7% and 3.5% in the third and fourth quarters, respectively. This follows sharp declines of 24% and 12.4% in the third and fourth quarters of 2011, as well as a 5.9% decrease in the first quarter of 2012.
Despite the positive step forward for the market, the DRAM inventory index in the first quarter remained elevated above the 9.0 weeks recorded the same time a year earlier in the first quarter of 2011. Furthermore, the index during the last four quarters has been above the long-term average of 9.5 weeks. Anything exceeding this threshold is considered undesirable because it indicates high inventories and weak DRAM demand. With DRAM prices on the retreat, holding onto inventory costs money for firms as they are unable to sell product immediately for revenue.
“The latest drop in the inventory index is due primarily to an aggressive stockpile burn-off from Japanese supplier Elpida Memory Inc., which declared bankruptcy in February. The action taken by Elpida - and the resulting drop in overall inventory levels for the industry in the first quarter - is a one-time event unlikely to be repeated. Even so, the reduction in stockpiles in early 2012 means that pricing should continue to strengthen in the second half of the year,” said Clifford Leimbach, analyst for memory demand forecasting at IHS.
DRAM Demand to Increase in Coming Quarters
Inventory in the first quarter could have declined to even lower levels were it not for the elevated DRAM stockpiles of two of the largest DRAM players. SK Hynix Semiconductor and Micron Technology saw a modest 15% and 8% rise, respectively, in their inventories during the period, putting upward pressure on the index value that also prevented the drop from being larger in the first quarter.
Still, the inhibiting effect of SK Hynix and Micron should not be construed as a negative, IHS believes, because there is strong feeling throughout the industry that the DRAM average selling price (ASP) will strengthen in the second half of this year. Renewed optimism for PCs spurred by ultrabooks, and the impending release of Windows 8, will likely translate into strengthened DRAM demand, bringing supply and demand into closer balance. As DRAM prices rise because of these market forces, SK Hynix and Micron could be well-positioned to take advantage and sell the inventory that they have built up.
Such favorable conditions point to a stronger DRAM market during the next few quarters and mean that the index will continue to decline. DRAM firms appear to be comfortable with their inventory levels overall, positioning themselves to reap the rewards of an expected increase in demand during the succeeding quarters.