DRAMeXchange indicates major players need to trim output to ensure market stability

Elpida/PSC’s 10-15% output cut is not powerful enough to drive the swing. Most importantly are Korean makers, who have a combined market share of almost 50%, need to cut output by 10% or more to ensure stability in market.

Taipei, September 17, 2008 --- According to DRAMeXchange, PSC and Elpida have announced respective DRAM output cut recently. Amid the reduction, global DRAM output is estimated to be reduced by 2-2.5% accordingly. Of which, PSC will cut output by 10-15% and Elpida will cut its Hiroshima, Japan fab output by 10%. PSC and Elpida house a respective output of 130k and 115k, respectively, representing a global market share of 20%.

Buoy from the supply reduction news, price of DDR2 1Gb eTT appreciated from US$1.32 to US$1.39 with price once hit US$1.40 mark. Over the week Sep 9-15, a sequential growth of 5.3% is seen. Price of DDR2 512Mb eTT has also appreciated by 5.7% in the same period. But prices for the DDR2 667 1Gb and 512Mb DDR2 were maintained static without being spurred by the news. DRAM spot price has dropped by an approximate of 20% since the Beijing Olympics ended. Despite price of 1Gb eTT once hit US$1.39 mark last week, the present pricing is still lower than makers’variable cost of US$1.30-1.50.

Output trim fails expectation
Although spot pricing did enjoy a temporal catalyst last week, the entire market is back to basic – oversupply. Given that the supply volume will take two months to see the impact, and that present inventory at the spot market is still high, impact from the output reduction has failed expectation. Demand is also encountering bottleneck as the acute price plummet as seen in early 2008 has spurred memory content per box to 2GB. The weaker-than-expected boost from Vista SP1 for memory upgrade thus slows down memory growth in 2H08.

DRAM output reduction ensures market recovery
Elpida/PSC’s 10-15% output cut is not powerful enough to drive the swing. Most importantly are Korean makers, who have a combined market share of almost 50%, need to cut output by 10% or more to ensure stability in market.

Since DRAM makers have been bleeding in red for seven straight quarters from 2Q07, they are teetering on the brink of eroding operation fund, rising debt ratio and more difficulties on fund raising (probably last through 2009). Output trim, thus, being the only way to resume the industry to normality. DRAMeXchange analysts indicates that Elpida/PSC’s 10-15% output cut is not powerful enough to drive the swing. If Korean makers do not trim output or quit from market, time for a recovery will be postponed.