Memory Prices Heading Up

Memory makers have finally stopped adding capacity because they spent themselves broke.

The glut of memory supply in 2007 was great for computer and electronics makers, as well as consumers, but terrible for companies in the memory business who were forced to lower prices.

Basic economic theory says when there is an oversupply, prices drop, and to increase the price, reduce the supply. Instead, memory manufacturers like Kingston, Samsung, Hynix and many others spent a fortune to increase their capacity, making the glut worse.

Well, that party is over. "They don't even have money to aggressively invest in capacity any more," Nam Hyung Kim, director and chief analyst for iSuppli, told InternetNews.com. "Last year they invested aggressively in capacity but they don't have the money to do that any more."

At the same time, OEMs and retail outlets are slowly running out of supply. They stocked up when memory was plentiful and cheap, Kim said, which carried them through for a while.

OEMs and channels used inventory from mid-Q1 to mid-April, said Kim, so there were very few orders. This also reduced the amount of memory being ordered, which forced memory makers to cut back their manufacturing.

But now, companies are ready to buy memory, to stock up as much as they can while it's cheap. As a result, iSuppli is expecting there will be a gradual increase in demand throughout 2008 in DRAM prices now that there is no increase in capacity and orders are being placed

Global revenues from third-party shipments of DRAM modules are expected to rise to $8.9 billion this year, up 9.4 percent in 2007. That will be a nice recovery from the 33.5 percent decline in third-party DRAM module revenues in 2007 over 2006 sales.

"Price is going up because now is the time for OEMs to acquire more inventory," Kim said. "So we are detecting a lot of orders from OEMs that aren't just for now, but so they can build some inventory for the holiday season. Prices are pretty much at the bottom. If we expect prices to go up, then the best time to get it is now."

In the NAND flash market, which has struggled even more, Kim noted an ever-so-slight increase, but added "Flash demand is 85 to 90 percent consumer-driven, and consumer demand slowed down due to weak consumer confidence. NAND flash should be more sensitive to the economic conditions."

This article was first published on InternetNews.com.






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