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Credit issues raise concerns for DRAM manufacturers, comments iSuppli
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The financial credit crisis is impacting the ability of some of the DRAM manufacturers to raise funds to service previous rounds of debt raising for capacity expansions as well as supporting current planned expansions. According to Nam Hyung Kim, Director and Chief Analyst for market research firm, iSuppli, thinks this may turn out to a be a good thing as it will limit new DRAM supply, resulting in a return to a better demand/supply balance in 2009.
“DRAM suppliers that already are facing cash issues soon may not be able to service debts that are coming due soon, commented Kim. “Furthermore, DRAM suppliers may encounter problems in trying to finance their capital expenditures. Amid weak market conditions and the credit crunch, cash management has become the most critical issue facing DRAM suppliers. This will have the impact of reduced capital expenditures among DRAM suppliers in early 2009.”
2008 has turned into the ‘Perfect Storm’ for DRAM producers. Continued overcapacity has resulted in bulging inventories just as demand began to fall due to the credit crunch that has started to affect consumer spending.
“The growing margin between spot and contract prices is a bearish sign for future DRAM pricing and demand,” Kim noted. “OEM contract prices for 2Gbyte PC DRAM modules will further decrease to the $20 to $25 level, down from the current $30 to $35 range, due to the flood of inventory. This level of pricing represents a ‘dead-zone’ for manufacturers, because it is less than the variable costs for the most DRAM suppliers.”
Kim, believes that meaningful production cuts by major players is required to see an improvement in the demand/supply balance.
