USA: The DRAM market finally is showing some signs of improvement, prompting iSuppli Corp. to upgrade its rating of near-term conditions for suppliers. iSuppli is raising its DRAM rating to “neutral,” up from its “negative” assessment issued in November 2007.

iSuppli’s neutral rating comes with a positive bias regarding future conditions for the market, given indications that the worst is over for DRAM suppliers.

DRAM market conditions since the beginning of 2007 have been characterized by oversupply, bloated inventories and weak pricing. The average megabyte DRAM selling price is estimated to have dropped by 17 percent in the first quarter, following a 31 percent decline in the fourth quarter of 2007. While still an above-average decline in the first quarter, the slower rate of decrease indicates the market now is bottoming out.

Amid reductions in channel inventories, and lower levels of expected capital spending among memory manufacturers, the supply/demand balance is coming into better alignment, a development that should bolster pricing. Per-megabyte DRAM prices will rise by 2 percent during the second quarter, iSuppli projects.

“Although the DRAM suppliers themselves are still carrying more inventory than normal, stockpiles in the channel have been reduced significantly,” said Nam Hyung Kim, chief analyst at iSuppli. “Furthermore, OEMs including the PC makers now are at optimal DRAM inventory levels, meaning their orders will increase during the critical third-quarter holiday build season.”

This is paving the way for an expected market recovery. When indications of a noteworthy decline in DRAM supplier inventories appear, iSuppli is likely to further upgrade its rating of market conditions to “positive.”

For the DRAM suppliers, their inventory/sales ratio is at about the 0.7 to 0.8 level, meaning that their stockpiles are equivalent to 70 to 80 percent of their sales This is far above the healthy range of 0.4 to 0.5.