July 16, 2008

Converge Storage Update

3.5" Drives
Oversupply and decreased sales volumes characterize the current state of the 3.5" HDD market. However, open-market pricing has remained stable month over month. The 80 GB and 120 GB capacities are only separated by $1–$2 and are selling in the $27–$29 range with 160 GBs moving at $33–$35. We are still observing pricing for 250 GB, 400 GB, and 500 GB HDDs in the low $40, $50, and $60 ranges, respectively, while the price difference between SATA and IDE HDDs of the same capacity and speed is insignificant. Lastly, there is little activity in the 750 GB and 1TB capacities.

2.5" Drives
There has been no significant change in the 2.5" HDD market since our last Market Insights update. Sales volumes for SATA interface hard drives continue to be low across all capacities, with resale prices slipping by $1–$2. There is now a $5–$7 price disparity between SATA and IDE HDDs of the same capacity and speed. Meanwhile, the 2.5" IDE drives remain liquid in the 20 GB through 80 GB models. A $3–$4 price difference exists between the 4200 RPM and 5400 RPM HDDs of the same capacity.

Converge General IC Update

As the general IC market heads into the summer months, we have yet to see any dramatic changes in overall market conditions. In fact, other than some of the specific activity mentioned in previous editions of Market Insights, there has been little change over the last 12–18 months. There has not been any prolonged product shortages since the high CV caps were in short supply in the second half of 2006. What we have been experiencing are quick “hiccups” in the supply chain on certain products or with certain manufactures. These shortages are not broad based, and tend to come quickly, lasting for a short amount of time before being corrected. The recent issue with shortages on Pulse products indicates just how quickly things can be corrected.

Looking forward, we have heard from a few franchise distributors and manufacturers about the possibility of price increases on certain products in the coming months. These include Altera, Broadcom, Infineon, Xilinx, and Cortina, to name a few. We have also heard that there could be some extended lead times as well, but there are no specifics as of yet. In addition, other manufacturers are starting to increase pricing on leaded material, while at the same time they are starting to cut back on production of this material. As most manufacturers will soon be changing all of their production to lead free, some of the leaded products will be in tight supply soon. We recommend that customers requiring leaded material for their builds plan accordingly.

Converge CPU Update

The story of Q3 has been the dramatic resurgence of shortages in the desktop market after a sustained period of relative calm. Back in the summer of 2007, the phaseout of an older CPU family led to product shortages, and this theme is set to dominate the market once again over the coming months. Last year, the Pentium D9 series caused box builders headaches, while currently the Pentium E series Conroe family is in great demand.

Meanwhile, cost savings characterize the mobile market, with shortages appearing only on newly launched parts.

Desktop CPUs

  • In our last edition of Market Insights, we reported savings available on the end-of-life Conroe family, E6XXX. The market quickly changed as the parts reached end of life and supply dried up. Requirements far outstrip supply at this point, with a steep rise in prices - particularly on the E6550, E6750, and E6850 modules.
  • Before the end of July, we will see many new parts launched, resulting in a wide range of price drops. For example, this has caused the Wolfdale E8XXX family to edge down in price day by day, as vendors try to clear their stock before the changes take effect.
  • The Q6600 has been a very active open-market part. There are large regional variances in pricing, and these gaps make for very good savings opportunities. Interest in the other Yorkfield CPUs (Q9300, Q9450 and Q9550) has faded.

Mobile CPUs

  • The off-road TJ models (T2330-90, T5450-750) provide consistent cost savings for tier 2 and 3 manufacturers, which in many instances are unable to access supply through direct channels. These models can often be bundled with their equivalent WiFi card (3945 or 4965 models) to create an attractive package, as surplus supply drives prices down.
  • The shortages previously highlighted on the Santa Rosa Celerons continue, with the newly launched CM 560 in tight supply, along with the 550, 540, and 530 models.
  • Small patches of demand still exist for the older Napa models (T2050-T2130 and higher-end T5500-T7200), as production ends and the requirements have yet to fully tail off, and the supply of Montevina is slowly reaching the market.

Server CPUs

  • Cost savings still exist within the Harpertown family (E5XXXs), which is prominent among server CPUs. Given the relatively higher cost of server chips compared to desktops, there is plenty of room for price variance, and worthwhile savings can be found.

Converge Memory Update

There appears to be turbulence once again in the DRAM market. June was considered a disappointment, with expectations of an increase of more than 10% in contract prices, while the actual result was roughly 5%.

July is shaping up to be a struggle, as the DRAM manufacturers were unable to achieve any price increases, resulting in a flat first half of July. The spot market has been quiet and inventory is once again starting to build up. 1GB 800 desktop modules have dropped from a high of $23 in early June to just under $20 thus far in July. Open-market vendors are listening to offers, but there are no signs of any buyers. It appears that for the second year in a row, we could be looking at a lackluster back-to-school build season.

These results do not come as a surprise, as there is no activity driving demand in the market. Rumors and predictions of a DRAM recovery in 2008 have been overstated. The global economy is showing signs of increased weakness, and corporate IT spending is limited. If market forces do not change soon, we expect pricing to decline further. In the meantime, depending on activity in July, we could see potential inventory dumping for the first time since February.