Home»News»Inventory surge adds to DRAM market woes

Inventory surge adds to DRAM market woes

Pinterest Google+

In contrast to the overall semiconductor industry, where days of inventory declined slightly in the third quarter of 2011, DRAM stockpiles increased dramatically, according to an IHS.The IHS iSuppli DRAM Inventory Index in the third quarter of 2011 stood at 12.8 weeks. This represents a sharp 31 percent increase from 9.8 weeks in the second quarter of 2011, and more than double the 6.1 weeks seen during the first quarter of 2010, which marked a recent low point for DRAM inventory. It also is significantly higher than the long-term quarterly average of 9.2 weeks.The DRAM Inventory Index measures the inventory value at the end of a quarter against the sales for the quarter. The index accounts for DRAM inventory held by the memory suppliers themselves, and not by DRAM buyers. A rise in the Inventory Index value means that there is more inventory being held by DRAM producers, putting downward pressure on chip prices.”The surge in inventory exacerbates the travails of the steadily deteriorating DRAM market,” said Clifford Leimbach, analyst for memory demand forecasting at IHS. “DRAM suppliers are suffering from a multitude of market-depressing factors including the lack of worldwide demand, the arrival of new applications needing less DRAM, and operating systems that do not require an incremental increase in DRAM as previous versions did.”The new applications include tablets, which employ lower densities of DRAM and are slowing sales growth for traditional notebook PCs.The financial difficulties of a number of DRAM players also have prevented capital expenditure investments on their part in more cost-effective processes, which could have improved the profitability of the companies. This is because newer DRAM chips manufactured using the most advanced process node technology yield higher profit margins, compared to lower margins seen from previous-generation chips that are newly produced or that have been sitting in inventory. With companies already suffering from razor-thin profits or even losses, the disparity between old and new DRAM chips becomes even more pronounced. History repeats itself—with some variationsThe worrisome spike in the inventory index in the third quarter is reminiscent of the last DRAM oversupply situation in 2008, which coincided with the worldwide economic recession at that time. But while the circumstances from the past are recurring on some level at the present, they also are different in many ways.For instance, the last upheaval occurred over a drawn-out period lasting nine quarters, while the level today from trough to current high has taken only six quarters. Also, the present peak is already higher than all of the data points in the previous cycle save for one—the previous apex, reached in the first quarter of 2009—and there is every possibility that this cycle could surpass the last, IHS believes.Because DRAM is a cyclical market, such distressing patterns during what should be the traditional peak sales season are not comforting to producers of the memory type. And given the decidedly uncertain state of the world economy, the DRAM inventory index could well continue to rise for a few more quarters, worsening an already bad situation within the space.In line with the gloomy state of the market, IHS is estimating that DRAM revenue slid to slightly more than $6 billion in the fourth quarter of 2011, down 11 percent from the third. Furthermore, it appears unlikely that the downward trend on operating profits will subside—which means that there will be little respite for the many DRAM companies already operating at, or below, cash costs. All told, the historical trajectory illustrates that the worst is yet to come.A glimmer of hope can be perceived, however, in this dismal atmosphere.”Should expectations arise that the economy might be headed for improvement—the belief alone is sufficient—things could rapidly improve,” Leimbach said. “An example of heightened expectations very quickly reversing the downward path of the DRAM market occurred in 2009, when the Inventory Index recovered from a beleaguered 14 weeks to a desirable six weeks in the space of just three quarters.”To be sure, the prospect of a bright future would bring a dramatic turnaround and some much-needed relief for the DRAM industry. But as it currently stands—and unfortunately for the industry—there is little cause for optimism.

Electronicsfeed.com is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. For a full list of the affiliate programs we utilize to help serve unique, ad-free content, take a look at our Advertising Disclosure statement.
Previous post

September LED bulb price dropped 3% compared to August

Next post

Sign of the Times: Wireless displaces computers