October 15, 2008

Converge Storage Update

3.5" Drives
Some analysts are reporting that inventory levels for the 3.5" storage drive segment are at a seven- to eight-year high and expect things to remain this way through the end of 2008. The result is that excess inventory is pushing pricing sharply downward. HDDs in the 80 GB to 250 GB range are experiencing the greatest decline, with only $2 to $3 separating open market resale pricing for each capacity. In spite of the excess inventory and price erosion, we are still tracking volume sales for IDE HDDs in this range. Meanwhile, pricing for the 400 GB capacity and higher have stabilized somewhat month over month. However, sales volumes are much lighter for this capacity range as compared to the lower capacities. This is especially true in the IDE interface.

2.5" Drives
The 2.5" market is not experiencing the same excess levels as the 3.5" market. As a result, open market pricing for the 20 GB through 80 GB IDE HDDs decreased by only $1 to $2 month over month. Demand remains steady in this range and interface. Meanwhile, sales volumes for the 2.5" SATA market remain light. We are tracking very few speculative buys at any price. There has been an increase in spot market demand for specific part numbers, including WD1200BEVS, WD1600BEVS and MK1234GSX. The 7200 RPM drive in the SATA interface continues to fetch a premium.

Converge General IC Update

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

  • Spot shortages remain on Freescale processors.
  • We have been monitoring an uptick in demand for some Murata chip inductors and filters.
  • Activity is increasing once again for military connectivity devices. Meanwhile, military contractors are tightening their quality processes.
  • Some manufacturers showing increased activity are Broadcom, Infineon, Analog Devices, PMC and IDT.
  • Overall activity in September was better, but it will be critical, given the current financial situation, to monitor general market activity over the next 90 days.

Converge CPU Update

In this month’s CPU update, we look back on a busy start to autumn, when a shortage market drove CPUs sales, and consider how the spot market can stimulate demand and provide value for buyers when a shortage market passes.

During a CPU shortage, supply chain professionals such as Converge scour the global spot market for the right parts to meet OEM demand. Generally, the requirements are created by market demand. When supply tightens on in-demand parts, requests intensify from concerned OEMs looking for parts to meet their production schedules. Finding cost savings in the market can be altogether trickier and more time consuming than filling shortages, but ultimately this is where Converge can help make a positive impact on a customer’s bottom line.

A Frenzied September
September saw a CPU split: 70% mobile sales, the remainder Xeon and desktops. Considering that traditionally desktop CPUs dominate in the spot market, this was an exceptional month. For example, end-of-life T7300s and T7500s were short, while the T7700 was a popular cost saver in OEM excess. Converge has long predicted that the expected Montevina family would be short, and this was realized in spectacular fashion as everything from the low-end Celerons and T1600s to the high-end Penryns, including T9600, T9400 and P8600, were in high demand. The T3200 and T5800 are interesting parts, as they work for both the current Santa Rosa refresh and the new Montevina platforms. Such dual compatibility is very rare and it adds to the popularity of these crossover specifications.

Fishing for Cost Savings
Shortages can end as suddenly as they began. At the time of writing this Market Insights, supply is relatively smooth and demand flat across the CPU market. In markets experiencing a relative calm, Converge focuses its attention on finding cost-saving opportunities for OEMs.

Converge will work with customers to identify parts used in their products and provide a customized model to identify potential cost savings on line items where excess supply may reside or to forecast possible shortages. The end goal is to provide customers with market visibility so they can identify parts that may become short and, just as important, where they can save money by buying through Converge.

Converge Memory Update

The expectation that the DRAM market would bottom out last month did not come to fruition. Similar to the stock market, the DRAM market continues to free-fall. As previously reported in our September Market Insights, Converge was expecting some market stability heading into October, but this did not occur. The 1 GB PC800 modules have dropped from $14 to $10.50 over a four-week period, and the 2 GB PC800 have dropped from $29 to $22. Given the condition of the global economy, it does not appear that these prices will rebound anytime soon.

Where is the unseen benefit in all of this activity? The box builders are paying approximately $21 to put 2 GB of memory in every PC they build. As we head into the holiday season, consumers should begin to see aggressive market pricing for new PCs and notebooks. The expectation is for weak PC sales in the fourth quarter, which should add to the current horrific market conditions.