June 18, 2008

Memory Update

As predicted in our last Market Insights newsletter, the market for DDR2 memory has stabilized over the past 30 days. During this time, there were numerous news reports of substandard parts (PC800-based) leaking into the market and of a major Korean DRAM manufacturer trying to retrieve them. Despite these events, market pricing did not respond the way many had anticipated.

In actuality, market supply dried up on 1GB 800 and 2GB 800 desktop modules, while prices increased only a few percentage points. 1GB 667 desktop modules increased from $19.50 to $20.50 and 1GB 800 desktop modules from $21 to $23 over the past month. Converge believes the primary reason for this occurrence is that demand is simply absent from most box builders. The fact that contract pricing increased only 2–3% for the first half of June also indicates the DRAM manufacturers may have jumped the gun on their predictions for a 12–15% increase in the month of June. We believe they have their work cut out for them to deliver a 10+% increase for the second half of June.

Overall, there is a lot of uncertainty in the market. Open-market buys have been spotty, and there does not appear to be any consistency or sustained momentum week to week. We believe the next 30–40 days will be critical to the DRAM market. If demand from all the box builders does not materialize by the end of July, the market could end up flat, or possibly weaken, by the end of July and into the beginning of August. What is most concerning is the 2–3% increase in the first half of June, while the market expectation was for 5–7%.

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