Chinas DRAM market tries to shake off Olympic blues

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China's DRAM market tries to shake off Olympic blues

China was hoping for an economic boost from the Summer Olympic Games, but for the nation’s DRAM market, the event actually had the opposite effect

Sunday, September 14, 2008

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USA: China was hoping for an economic boost from the Summer Olympic Games, but for the nation's DRAM market, the event actually had the opposite effect, plowing a trough in demand right before the all-important holiday season, according to iSuppli Corp.

With China's attention focused on the event, third-quarter DRAM shipments in the nation are expected to post virtually no growth compared to the second quarter, falling short of expectations.

However, iSuppli believes DRAM demand in the nation will begin to recover sharply after the conclusion of the Olympics and the start of the pre-holiday ramp up.

"The games clashed with the traditional summer promotional season for PCs in China, with many consumers glued to their TVs and absent from stores," said John Lei, analyst, memory ICs and storage systems for iSuppli. "This caused sales momentum to slow. Furthermore, all the IT equipment required for the Olympics was purchased years before the event, meaning there was no Olympic boost for DRAM demand."

Even before the Olympics, consumer PC demand in China was already facing some economic headwinds due to rising inflation. Beyond this, China's government engaged in more strict control of imports during the Olympics, causing purchasing activity on the DRAM spot memory market to decline.

Holiday rebound looms
With the conclusion of the Olympics and the impending start of the holiday season, consumers should start buying more PCs, driving domestic demand for DRAM. Furthermore, China's Consumer Price Index (CPI) began to decline in the second quarter and is likely to continue to decrease throughout the second half, reducing inflationary pressures and encouraging consumers to spend.

"Much of the demand that disappeared during the Olympics could return during the holiday season," Lei said. "Consumers will be upgrading and replacing their old PCs to meet software requirements. With DRAM prices at low levels and inflation more tame, consumers may be out buying PCs in force during the holiday season."

IT cycle turns
With most of the construction and provisioning of national IT facilities having been completed prior to the Olympics, most PCs now in use at these operations are at least two to three years old. These systems will need to be replaced or upgraded, particularly with the 60th National Day events to be held in 2009.

Furthermore, fast-growing Chinese Internet-service companies will be upgrading their systems as they expand their operations in order to attract more customers. Rather than buying completely new equipment, many of these companies are likely to take a cheaper route and upgrade the DRAM in many of their systems, iSuppli predicts.

The fundamentals
Regardless of the third quarter, China remains one of the most vibrant markets for DRAM in the world. National PC penetration per family is only at about 55 percent, which means computer and DRAM demand will continue growing in the future. Much of the growth will be in lower-cost white box PCs, whose sales growth is expected to outperform the branded computer segment in the coming years. Due to these factors, iSuppli predicts China's DRAM market will avoid a downturn.

Inventory concerns
While demand in China is expected to recover, the DRAM industry still faces a significant overhang of inventory, which is causing prices to decline. In the spot memory market, pricing for 1Gbit Double Data Rate 2 (DDR2) DRAM dropped by a stunning 18 percent during the week of Sept. 1. iSuppli expects a severe price drop for the entire month of September. Because of this, it's a great time to buy DRAM in China, according to iSuppli.
Source: iSuppli

©CIOL Bureau

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