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Spot the memory

27 September 2007 | By Mark Osborne | Editor's Blog

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DRAM prices are diving again, especially on the spot market, according to Hynix, who has pulled out of selling approximately 15 percent of its DRAM in that manner. The problem is that spot prices have fallen below production cost values once again as memory manufacturers continue to ramp fabs aggressively. 

How long Hynix can stay out of the spot market is not publicly known but unless it is cutting back production as well, then inventories will rise quickly while revenues fall further.

The main aim of the move of course is to protect contract prices, which are impacted by what goes on in the spot market. Taking supply out should do so if Hynix holds firm and creates a better supply/demand balance at the busiest purchasing period for the year.

Hynix seems to be the most vocal about the plight of the memory market of late having had the cheek to tell Taiwanese memory manufacturers that they were to blame for the glut and should cut back capacity expansion.

New senior management at Hynix may not have realised that Hynix and Samsung built market share not that many years ago by flooding the market – cue many manufacturers exiting memory production quicker than you can shout…heigh-ho silver - awaaaaaaay!

Now it seems the pesky Taiwanese are doing the same back on the Koreans.

I have taken much of what memory manufacturers have said about market trends this year with a big pinch of salt as they flatly got the ‘Vista effect’ badly wrong last year.

Not only that, but it is very clear that all memory manufacturers have increased production over the last two years, some more aggressively than others, but all have spent money filling new 300mm fabs as quickly as possible.  

In the last 300mm activity report (Fabtech #34) I focused specifically on detailing the activity in all 300mm memory fabs for the most active of periods ever!

The number of new fabs coming on stream coupled to the size of these ‘monster’ fabs rather than ‘Mega’ fabs is striking.

Even ramp rates at these fabs are getting faster and faster, leading me to the conclusion that unless the industry finds a brand new market that will swallow up capacity being put in place, then we can only expect an overcapacity situation throughout 2008!

Even now as we near the normal end to the major demand cycle for the year the prices are falling. That will continue into 4Q07 and beyond as most market analysts have predicted.

However, we see the build out and ramp rates still in place are having a very bad influence over ASPs in 2008. What is actually needed is for all - not just the Taiwanese - memory manufacturers to curb capacity expansions.

The problem with that, of course, is that it is not going to happen. Then again, if Hynix wants to be taken seriously perhaps it should be the first to do so?

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