DRAM prices not set for recovery.

[This piece is the first in a streak of experimental content which uses lists of facts and analysis rather than prose. We believe this should be faster to both read and write, while delivering a clearer message and being easier to follow. So let's see how this goes...]

Data

• DDR2 pricing is now at an all-time low of $21 USD for a 1GiB module, or $1.13 USD per 512Mbit chip.
• Prices are down more than 80% year-to-date, and nearly halved since August. They were down 60% already in April (see our previous analysis), and continued declining until the summer when they had a temporary recovery.
• Margins are razor-thin for everyone, with several players likely losing a fair bit of money at those prices. However, many DRAM manufacturers also sell NAND Flash.
• NAND Flash pricing has remained flat to slightly up in the last 6+ months, but started dropping again in October. Despite this, Samsung is once again rumoured to be shifting capacity back to NAND.

Analysis

• The industry started shifting capacity back to NAND in April, which resulted in a positive effect on DRAM pricing in June, July and August. This delay is explained by normal manufacturing lead times.
• The back-to-school season and the associated optimism increased demand amid this small reduction in supply. DDR2 pricing increased accordingly.
• Afterwards, supply increased again while demand went down as per seasonality. The summer gains, which were partially based on mere optimism rather than sustainable market conditions, rapidly reverted.
• NAND pricing is finally starting to decline again as demand seems to have been overestimated, and seasonality is starting to play a negative role in the market.
• The market is starting to realize that both DRAM and NAND supply will be more than enough in the coming months due to lower than expected demand. NAND supply will also increase more than expected due to capacity shifting away from DRAM.

Predictions

• DRAM and NAND pricing will further decline in December as the above factors continue to apply amid industry-wide high inventory levels.
• NAND pricing will drop significantly in 1H08 as new process nodes go online and capacity shifts away from DRAM. This risks significantly increasing supply amid a seasonally slow period. The picture doesn't look as bad in the second half, however.
• Vista SP1 adoption by enterprises is likely to be a positive factor for DRAM in 1H08 and beyond, but will probably not fully compensate seasonal weakness unless bit-supply growth is much weaker than expected.
• DRAM prices will remain more stable in 2008, and are likely to drop slower than average manufacturing costs in the first half and beyond. However, we believe both consumers and investors would be mistaken to believe prices have bottomed out or will anytime soon.