August 13, 2008

Converge Storage Update

3.5" Drives
In recent weeks we have been tracking an increase in demand in the 3.5" market, which includes both the IDE and SATA interfaces. Most of the activity is surrounding the 80 GB, 120 GB and 160 GB capacities. However, we are beginning to see signs of increased demand in the higher capacities as well. While pricing has slipped $1–$2 across the board, the uptick can likely be attributed to a combination of lowered costs, a leveling of inventories and seasonal production increases.

2.5" Drives
Unlike the 3.5" market, this segment has not experienced any increase in activity. The SATA drives are slow moving even as independents significantly drop prices to move inventory. Pricing for the IDE drives remains stable, but sales volumes remain flat. Overall, there has been little change in the 2.5" market month-over-month.

Converge General IC Update

We are currently tracking parts that might experience shortages and delays in the following areas:

  • Due to significant price increases in raw tantalum, there has been heightened open market activity with OEMs and CEMs looking for cost-savings opportunities on tantalum capacitors.
  • We are still tracking spot shortages on some Pulse Engineering transformer modules. However, shortages are not widespread, as Pulse is delivering some customer orders while pushing out deliveries to others on the same devices.
  • Demand, although still active, appears to have stabilized on military diodes and connectivity devices. Lead times are still extended, but most builds have been scheduled factoring in longer lead times.
  • July and August are traditionally slow months for IC activity. However, after a flat spring, activity in July was better than expected and demand continues into August.

Converge CPU Update

July proved to be an active month for CPU sales in the open market. Although there were a number of contributing factors to this activity, it remains intriguing that one of the peak months this year occurred during a traditionally slow manufacturing period. In this month’s report we examine some of the reasons for this effect and look ahead at some emerging trends for the buildup to the holiday sales season.

Push factors
Gaining a return on end-of-life, excess and obsolete parts has been one of the cornerstones of the open market. Conversely, we have been tracking a rise in excess components offered in the open market during the summer lull in manufacturing and in particular during the month of August.

The opportunity for cost savings attracts buyers while turning previously dead inventory at OEMs and CEMs into revenue. For example, OEMs still using the Conroe E2140 and E2160 can currently acquire the component for 10% below their direct price – as it is phased out and excess inventory appears in the spot market. Older Napa mobiles, T2130s, that were no longer being used at most OEMs’ production lines are now in demand by the embedded computer builders.

In much of Northern Europe, the Mediterranean and Latin America, factories shut down for three to four weeks over the course of the summer. During this time, a flurry of stock offers appear in the spot market as manufacturers look to enter the holidays with a clean balance sheet.

Pull factors
As announced at the marquee computer show Computex Taipei in June, AMD and Intel will go head-to-head with a series of chipset and CPU launches to be rolled out over the summer. As designers and manufacturers wait for news on the latest technologies, the open market prepares for increased demand caused by missed production schedules and shortages. It is anticipated that the Intel Centrino 2 Montevinas and AMD’s Puma are components to potentially be in short supply.

For end-of-life parts, the open market can resurrect demand. As highlighted in last month’s Market Insights newsletter, we reported the desktop E6550, E6750, E6850, E4600 and CD 440 chips all became short and in high demand as they moved out of mainstream production. On mobiles, the midrange Santa Rosas, T7XXXs and Celerons, as well as older Napas, changed hands quickly.

Overall, the number of new product launches this summer not only pushes shortages on new chips but conversely causes the pull of supply for some end-of-life parts through the spot market.

Looking ahead, in August, we see the continuation of “back to school” demand driving CPU sales while the mobile Montevinas, Atoms and recently launched Desktops (E5200, E7300, E8500, Q8200, Q9400, etc.) emerge.

Converge Memory Update

August is not even at the halfway point and the market is already in a spiral. Things are not going well for the DRAM manufacturers as the much anticipated “back to school” boost is nonexistent and the second–half year DRAM rebound is all but nonexistent, at least for now. The 1GIG 800 module has dropped to the $16.00 range, and Converge believes it will drop even further before the end of the month. This is a new low for the 1GIG 800, which was trading around $19.50 on the last day of July. It appears a significant amount of inventory dumping is taking place, as large quantities of parts are available, especially from the Far East. There are also numerous reports in the media stating PC sales are slow and total sales are going to come in below original expectations. Although notebook demand remains strong, there are some signs they, too, may miss forecasted expectations.

Currently 2GIG 800 modules are trading in the $38.00 range and it appears those will also continue to decrease in price. Any further price drop for the 2GIG 800 will also be a new low. Converge believes there will be no positive price movement for the remainder of August. The one upside to this activity is that the spot market can offer significant cost savings to end users if they have a place to put some modules. Gathering 50,000 to 100,000 units of the staple 1GIG 800 module below contract pricing is quite attainable.