December 17, 2008

Storage drive market prices continue to fall

Converge Storage Update

3.5" Drives
Converge has been tracking an increase in sales in the 3.5" storage drive market month over month. Meanwhile, pricing has remained relatively stable in the 160 GB to 500 GB range during this timeframe, differing by only $1 to $2 since our last Market Insights update. However, pricing in the higher-capacity drives, 750 GB and 1 TB, is eroding at a much faster rate, with open-market pricing in the low $70 to high $90 range, respectively. Conversely, sales in lower-capacity drives have slowed, with 80 GB and 120 GB capacities no longer moving at the same volume they were two to three months ago. These devices have experienced sharp price declines compared to mainstream drives, with price parity occurring between these two capacities.

In general, the PATA interface remains liquid as compared to the SATA interface, which is particularly true in the lower-capacity models.

2.5" Drives
The 2.5" market continues to slide. Open-market IDE pricing fell by 10% to 15% month over month. However, sales volumes have remained relatively stable. Meanwhile, the SATA market is experiencing even sharper declines, with as much as an $8 difference between comparable IDE hard drives of the same capacity and speed. SATA sales volumes are low, but part-specific demand remains.

Excess inventory becomes available earlier

Converge General IC Update

As with overall global economic conditions, the IC market slowed down a bit in November. Many customers have shifted their forecasts downward, and demand has softened up for many builds. We have also seen a number of excess inventory lists, and although it is not unusual to see excess inventory become available as we approach the end of the calendar year, these activities usually don’t take place until mid December.

Even with the end of the year and the economic slowdown, there are still areas where customers are experiencing delivery issues. We are still seeing quite a bit of activity on some Freescale processors, and lead times have extended out to 12-16 weeks for some products. We have also seen some activity on Altera, Tundra, Analog Device and Avago. These are mostly short-term needs and not anything prolonged, with the exception of Freescale shortages. Some Freescale parts, such as MPC8540, MPC8560 and MPC8280, have been tight for a few weeks, if not months.

We expect more slowdowns in December, especially mid-month and beyond, since many factories are closing for two weeks around the holidays. For customers who do have demand, there could be some good deals out there up until the New Year.

CPUs seeing resurgence in the service repair market

Converge CPU Update

In this month’s CPU update, we will reflect back on the past year and look forward to what 2009 markets may bring for the microprocessor market.

In 2008, we saw the usual variability of shortages and savings and the never-ending march toward smarter, faster and less expensive models. Proving more interesting were the emergence of new markets, the blossoming of the service microprocessor industry and some alarming price trends.

Low-cost devices reign
The dilemma with chip manufacturers making their parts better and cheaper is that customers may no longer require the mid- and higher-level parts to perform their day-to-day computing functions. As Intel and AMD have fought bitterly for market share, the resulting price war has left consumers with far more computing power for their CPU investment. In 2008, we witnessed the market being split, with demand on one end for high-end gaming machines and on the opposite end for everyday computers. This resulted in a shrinking demand for mid-level CPUs. The high-end market, while lucrative, is not built based on a high-volume model.

Lower-end Intel models such as the E2140-80, E2220 and T3200-T5900, priced between $50 and $100, have become mainstream, taking over for the $150+ midrange P8400/E8400 models as our best sellers. Demand has remained healthy. However, OEMs now need to sell more CPUs to match their previous revenue streams. For 2009, it has yet to be determined how the emergence of mini computers with low-cost, low-voltage CPUs will affect the market.

At the other end of the market, the new Intel i7 gaming models are bringing a new dimension to the gaming market. It will be interesting to watch how these devices trade in the open market.

Second life
Service and repair CPUs have always been staples of Converge’s CPU offering, and this past year has seen a broadening of demand and supply across all regions of the world. CPUs once considered yesterday’s technology have seen a resurgence in the service repair market.

These CPUs are circulating in greater numbers to meet emerging market and service repair demand. While economic conditions remain a concern, we can expect the growth of the service market to continue as system refresh rates are extended.

Identifying cost savings
Slowing demand for some components combined with excess inventory entering the spot market at year-end has created an opportunity for potential cost savings. Manufacturers looking for CPU components can find opportunities in the spot market.

DRAM manufacturers need to reduce production

Converge Memory Update

As the year draws to a close, 2008 will perhaps go down as one of the worst years on record for the DRAM industry. The lack of demand for PCs and the condition of the global economy have caused the DRAM market to reach a new low. The second half of 2008 experienced falling prices month after month. Even after output reductions and cutbacks, DRAM manufacturers were not able to recover. Losses are piling up, and drastic measures will be necessary in the coming months in order for the smaller DRAM manufacturers to survive. Unfortunately, it will only benefit the market if a manufacturer or two were to go out of business. Anything that will help alleviate some of the supply funneling into the market will only benefit the situation in the end.

The outlook for 2009 does not appear much better. The DRAM manufacturers need to reduce production even further and to hold course on production levels as a team. There is so much excess supply accumulating in the channels that it will take a significant increase in demand from the box builders to burn through the excess inventory. Until the economy improves, DRAM manufacturers need to understand that part of their current problem is themselves. They need a plan to reduce production and need to stick to it to truly affect the market.