What was last month's DRAM price hike all about?

Analysis July was a confusing month for those poor unfortunates whose lives revolve around the spinning top that is the DRAM market. Distributors saw prices drop in the first week, continuing the year's downward trend. They nestled at what felt like rock bottom, with everyone wondering just how low they could go. But this demoralising incident was quickly followed by a sudden -- and somewhat unexpected -- rise in price. By the end of the month, modules were up around 35 per cent, and prices seemed to be lying in an uneasy no-man's land of almost, dare we say it, stability? There, we said it. In July, Dane-elec reported rises of around ten per cent on chips, with 64Mb chips jumping to between $5 and $5.50 by the end of the month. But while this sounds like the news everyone had been waiting for, in reality prices were still around 50 per cent lower than they had been in January. The module market hit £21.50 in the first week of July, according to Microtronica sales and marketing director Steve Clark. He said prices rose about 35 per cent in the following two weeks, and have since stayed stable. Feeble recovery Yet this is still quite a feeble price recovery -- and a far cry from the £50 cost of modules at the start of this year. The industry now seems to be waiting to see what will happen next. Most distributors seem confident that prices will stay stable at between $5 and $6 -- but that could just be wishful thinking. Joe D’Elia, principal analyst at Gartner Group, sees no cause for celebration just yet. "I think we will see prices staying stable to slightly down until the end of the year," he said. "The majority of manufacturers are still losing money –- and only the most efficient, such as Samsung, are actually getting a higher price than their manufacturing costs. "Prices won't start going up until there is a balance between supply and demand –- which we don't predict will happen until next year." Prices started rising in July after rumours that chip manufacturer Micron was having problems with a factory in Singapore. Although Micron moved to squash these rumours, it looks like it might have been enough to nudge prices upward. Protective ordering Companies were startled into protective ordering, according to Richard Gordon, a Dataquest analyst. "People were double ordering to make sure they had enough," he said. "It was a chicken and egg scenario – these rumours caused brokers to put their prices up, people ordered more because they thought there would be shortages, and prices went up again." At the same time, there was talk of companies such as Micron stockpiling stock. This also helped to push prices up towards the end of July, according to Gordon. But in a rare show of unity, a number of key analysts are all of the opinion that it would be wrong to put too much faith in the events of last month. Gordon said: "July is the middle of summer –- there are often odd things going on at this time. "I would caution against taking the price rises too seriously, but they can be used as an indication of what's going on." Silly season Dataquest senior analyst Evelyn Cronin -- pulling no punches -- summed it up thus: "It's the silly season." And D’Elia said: "You can't look at the spot market pricing and predict rises or falls -– it has a life of its own." "At the moment, there is still oversupply in the market. And as long as that is the case, we will not get a balance," said Gordon. For August, prices should stay stable. Anthony Williams, purchasing manager at components distributor CCM, said he was expecting a rise of around $1 on 64Mb DRAM chips during August, with prices likely to stay stable. "I can't see prices dropping again -- prices in the Far East are still going up. But I haven't heard about any shortages yet," he said. Alan Stanley, general manager at memory distributor Dane-elec, said 64Mb chips, eight of which are needed for the average module, are currently priced at around $5.50. Stanley said he expected this to rise to $6 in August, and then stabilise. All of which means companies will have to hang on until next year to see any major price rises. And care should be taken by OEMs -– especially when putting in big tenders. "Around the middle of next year we should see the market flip, and this balance will cause prices to rise," said Gordon. Prices should stay stable until the end of this year -- at around $5 or $6 per chip. But analysts say they will probably fall slightly next year before they pick up again. The only piece of good news on the horizon is that shortfalls are now thought to be likely next year -- but don't hold your breath, we're talking about the end of next year. ® See also: Taiwan blackout wreaks fab havoc DRAM prices will rise further claims Micron exec DRAM: comeback or false dawn? Micron hits back at DKB report and hints at legal action