DRAMeXchange says DRAM contract price to continue increasing

[Apoptosis]

DRAMeXchange says DRAM contract price to continue increasing until 4Q07

Taipei, July 24, 2007---

The demand of DRAM spot market should start to pick up again, as inventory levels stabilize, by the end of July and early August

Last week the DRAM spot price continued to decline, as retailers and several module houses were still in the process of clearing out their inventory. By the end of July and early August, demand should start to pick up again, as inventory levels stabilize. Between the July16~20 period, the DDR2 eTT chip slid to US$2.05, while the branded DDR2 512Mb 64M*8 declined to US$2.19.

The DRAM contract price increases 5%, as expected

In the contract market, the DRAM DDR2 512MB module price edged up by US$1~US$2, a roughly 5% increase. Given the fact that a few PC OEM makers place orders on a monthly basis during the hot seasonal sales, prices began to increase in 1HJul. Some DRAM makers have further adjusted their prices above the US$20 level--an indication that the oversupply situation has improved in the wake of the approaching strong seasonality. For 3Q07, if DRAM makers successfully transition to the 70nm manufacturing process to further lower their costs, they should be have a chance to turn profitable.

Amid strong PC shipments and increased DRAM content per box, DRAM demand will peak in 4Q07

Beginning from mid July, DRAM makers have subsequently started to announce their earnings result for 2Q07. Among the quarterly earnings report currently released from them, they have all incurred losses. Inotera, which is a DRAM foundry, was the only maker to be profitable in 2Q07. Based on the DRAM makers’ financial reports, the manufacturing costs in 2Q07 has dropped roughly to US$2.2~US$3.2. From the current DRAM prices, some players should be able to break even in 3Q07. In addition, both Inotera and Powerchip believe the DRAM average price will gradually rise in 2H07, where the price levels in 4Q07 will be even better than in 3Q07. DRAMeXchange has also observed that the PC shipment peak should occur around October~November. The annual PC shipment growth is expected to jump 12% YoY, a higher ratio than originally predicted. In light of the usual strong PC shipments in 4Q07, the DRAM content per box is projected to go up significantly. From a demand standpoint, it should peak during 4Q07.

The continued output increases and relatively high inventory levels of retailers may inhibit the momentum for prices to rise in 2H07

From a supply perspective, despite the plunge in DRAM prices, only Hynix has switched some of its production to Flash. By contrast, Taiwan makers can only rely on more mass production to lower their costs, as they do not have any Flash products. In addition, ramp up of Taiwan’s newer 12 inch fabs is scheduled to begin in 4Q07. Meanwhile, as several retailers and module houses still have a high inventory, they hope to decrease their losses by clearing out the excess chips during the hot selling season. A handful of DRAM makers also experienced higher chip stockpiles in 2Q07. All in all, the continued output increases and relatively high inventory levels of retailers may inhibit the momentum for prices to rise in 2H07. DRAMeXchange predicts the DDR2 512Mb chip price to stay near US$2.2~US$2.5, while DDR2 1Gb to hover at the US$4.5~US$5 level.