Major DRAM makers reduce production

TAIPEI, TAIWAN: Last week (Dec/3-Dec/10), DDR2 512Mb eTT spot price once climbed to the US$0.9 level and closed at US$0.79, down by 2.4 percent, while DDR2 1Gb eTT jumped to US$1.92 and finally closed at US$1.83, an increase of roughly 10.9 percent.

"The growing demand for single 2GB modules and the relative cost advantage of 2GB modules over 1GB modules that are manufactured with 512Mb chips, it is easy to see that 1Gb chips is gradually becoming the mainstream market standard," said DRAMeXchange analyst, "this trend is more evident with the price fluctuation of DDR2 512Mb price and the increase of DDR2 1Gb price last week."

In the contract market, DDR2 667 1GB module price was averaged at US$19 in 2HDec, representing a 10 percent sequential drop. One of the main reason is the coming end of Christmas holiday shopping season. As December is a traditional slow season, OEM manufacturers have a low incentive to re-stock, thus prolonging the price weakness. DRAMeXchange foresees contract prices to continue its decline in 2HDec.

With the rise of DDR2 eTT 1Gb price last week, DRAM makers' plan for reducing production volume has again become a focal point of discussion. DRAMeXchange points out the following factors to come in play and help DRAM price to stabilize or even rebound in 2008:

* Taiwanese DRAM makers announced plans of reducing capital expenditure next year.

* Qimonda has announced its plan to reduce production in its European operation so production output from its European operation will reduce to 30 percent of total production from 40 percent currently.

* The slowdown in 12” wafer capacity expansion and the continued decrease in 8” wafer production capacity

* DRAMeXchange reported global DRAM supply bit growth to decrease from 92 percent in 2007 to 57 percent

From the market perspective, when prices fall below the variable cost, it becomes highly possible for major DRAM manufacturers to reduce their production volume in spurring prices to rise.

Samsung and Hynix in combination own nearly 50 percent of the global DRAM market. Once they or other DRAM makers decide to reduce production, we will then see a chance for DRAM market to reach a balance between supply and demand next year, and potentially a rise in DRAM chip price instead.