December 16, 2009

Flexible Enforcement of Importer Security Filing (10+2 Rule) Ends on January 26, 2010

Converge Freight and Compliance Alerts.

Effective January 26, 2010, all ocean freight to the U.S. will require a security filing known as ISF, or the 10+2 rule. This rule is nicknamed 10+2 because carriers are required to file 12 additional pieces of data with U.S. Customs; 10 of these elements are provided by the importer/consignee and 2 by the carrier. Failure to accurately file the ISF will result in penalties up to the value of the cargo, and freight will not be loaded, causing delivery delays. The fine for failing to update, withdrawing or submitting incomplete filings will be $5,000.

The ISF is filed with U.S. Customs electronically and is required to be filed 24 hours prior to vessel loading. This means the days are gone when freight can be loaded immediately, with a commercial invoice to follow at a later time. Most importers will utilize the services of their import brokers to perform this task but can also self-file.

The information filed will be used to help the U.S. better assess and identify high-risk shipments. Customs’ automated targeting system will analyze the data and flag appropriate containers for further review as they approach the U.S.

The importer is now required to provide its forwarder, prior to vessel loading, the following 10 data elements:
1. Seller name and address
2. Buyer name and address
3. Ship to name and address
4. Manufacturer/supplier name and address
5. Container loading location
6. Consolidator name and address
7. Importer of record number or Foreign Trade Zone applicant ID number
8. Consignee number(s)
9. Country of origin
10. Commodity HTSUS number (minimum 6-digit level required, 10 accepted)

The carrier (steamship line) is required to file its vessel stow plan and container status messages 24 hours prior to arrival in the U.S. These filings are for freight imported to the U.S. as well as freight transshipping to other regions, such as South America.

These filings can be done directly by the importer, or with a power of attorney, the importer’s freight forwarder can do the filing. The importer must also have a continuous bond on file or file a single-entry bond when filing. All entries into the U.S. are audited by Converge to ensure accurate and timely filings.

Desktop panel supplies tighten

Converge LCD Update.

One of the biggest news items in the panel industry is the recent merger of CMO and Innolux. Innolux is part of the Foxconn Group, which is known in the electronics industry for its rapid growth and aggressive pricing strategies. The merger allows Foxconn to better integrate its supply chain, thus being better positioned to compete with industry leaders from mobile phones to notebooks and LCD TVs. Converge believes there is little doubt that Foxconn will surge ahead as a leader in the manufacturing of these applications in the coming years.

Despite the overall downtrend, TV panel pricing is showing signs of stability in December, and the pricing outlook for January 2010 is expected to remain largely unchanged. The strong seasonal demand from Asia before the Chinese New Year provides support at the current pricing level. Factory pricing for 32", a benchmark regarded by many market observers, remains around $200, with lead times stretching out to 4 to 6 weeks. Most factories are fully booked through the end of January. TV and desktop panels are both manufactured in the sixth-generation line. With more production capacities being allocated to TV, desktop panel supplies will inevitably be affected and are starting to show signs of shortage.

Downsized production capacities and strong seasonal demands in China conspired to push the prices higher for monitor panels. In addition to making 26", 32", and 37" TV panels, the sixth-generation line also supplies mother glass for mainstream desktop panels. Pricing for desktop monitor panels is expected to increase 5% to 10% between now and January 2010. Several sizes in the highest demand are 18.5" through 22.0". The factory lead time has also increased from 2 to 3 weeks quoted in September through October to 4 to 6 weeks at the current level. With the holiday seasons approaching around the globe, panel supplies are getting tighter.

LCD supplies for notebook PCs remain modestly allocated. Going into 2010, most of the 15.4" and 17" models featuring CCFL illuminators are completely discontinued, replaced by LED technologies. This is one of the technological advancements that revolutionize the entire industry. On the flip side, this may represent one of the toughest challenges that the service industries have had to face in a decade, in fulfilling their repair contracts as the shortages on the CCFL technology become permanent.

The industrial panel market shows little change, with demand resurfacing on certain EOL models such as the Sharp LQ084, LQ104, and LQ121 series.

Activity in the 2.5" SATA market is for HDD service support

Converge Storage Update.

3.5" Drives:
Widespread shortages in the 3.5" storage market continue. This is especially true in the 500GB through 1.5TB SATA capacities, and specifically in the 1TB drives, across all manufacturers. The aforementioned drives are being allocated through distribution. Currently, when available in the open market, 500GB is selling at $55 to $60, 1TB at $89 to $92, and 1.5TB at $117 to $122 into the manufacturing space. These prices are reflective of non-enterprise-level HDDs. We expect this shortage to continue at least until the midway point of Q1 CY2010, with shortages in the 500GB and 1.5TB increasing to the levels that we are currently seeing with the 1TB capacity. Meanwhile, the lower-capacity SATA HDDs have not reached the shortage levels of the higher-capacity drives. As a result, pricing is relatively unchanged month over month. However, we are seeing volume demand on a price point variance (PPV) basis. The IDE capacities have been relatively unaffected by the SATA shortage. Demand remains steady for the 80GB through 400GB range, with pricing stable.

2.5" Drives:
Most of the activity in the 2.5" SATA market is in support of end-of-life HDDs needed for service. We are not seeing shortages near the level of the 3.5" market, thus most production inquiries are for PPV savings. Demand remains strong, with routine volume purchase inquiries for the 160GB through 500GB SATA capacities. Meanwhile, demand is increasing for the 2.5" IDE interface. This is evident in the 80GB through 250GB HDDs. We believe that the shift of mainstream production to the SATA interface coupled with an overall slowdown in production during late 2008 and early 2009 are primarily responsible for this. Looking forward, we expect this trend to continue, with increasing demand and shrinking supply for this interface in the capacities previously noted.

Texas Instruments (TI) Data Converters (TPS) Logic series (SN74) and OP Amps (OPA) still the hottest parts in the market

Converge Semiconductors and Integrated Circuits Update.

Shortages and extended lead times trouble the market.
The market is settling into a consistent pattern of spot shortages and extended lead times, being driven by the following:

  • Texas Instruments (TI) Data Converters (TPS) Logic series (SN74) and OP Amps (OPA) are still some of the hottest parts in the market right now, with lead times extending 18-20 weeks on most products. National Semi appears to be the best option on competing lines, with lead times remaining at 8-12 weeks. However, On Semi and ST Micro are both facing allocations on some of their competing lines, which may further impact lead times.
  • Lead times on Altera PLDs have stabilized at 8-16 weeks.
  • TI and Freescale DSPs are still short, with Freescale lead times out to 14-16 weeks and some of the TI products out as far as 28 weeks. There looks to be no loosening of this supply well into 2010.
  • MCU lead times are extending across all manufacturers, with widespread allocation a possibility. TI’s MSP430 line is experiencing lead times over 22 weeks while Atmel, Infineon, and Freescale are pushing 20 weeks.
  • On Semi MBR(S) diodes have hit lead times up to 24 weeks, and prices on some parts have risen dramatically.
  • There are strong indications that the significant increase in demand we have been tracking over the last quarter will continue at least into the second quarter of 2010. Allocations on some products will likely occur, and customers need to be very attentive toward any rescheduled delivery dates from manufacturers.

AMD x2 215 can be found in the spot market in large volumes

Converge CPU Update.

In November, the CPU market saw an increase in demand for new builds coming from PC production ramping. This development bodes well as we are tracking many encouraging signs in the market as the end of the year approaches.

A closer look at the embedded processor market.
Converge’s pedigree in IC and CPU computer production products means that we have a unique vantage point in tracking product movement in the embedded processor market. For example, Intel Atom processors move freely from the active netbook market to industrial computing, as do bundled chipsets.

This is a very dynamic market, and we have observed components move freely between the two market segments. For example, E6400 desktop and T7400 notebook CPUs are primarily coming from the embedded sector to fill end-of-life demand in the consumer PC market. The open market has become the ideal tool for rebalancing supply and demand inefficiencies, and the embedded/consumer crossover is becoming an area of consistent growth.

The mobile Calpella family waits in the wings.
As widely expected, many of the Calpella parts, Intel’s next-generation PC platform, were delayed for the holiday season. Converge anticipates that the new mobile chips will arrive with much fanfare in the New Year. We’ll provide future updates to keep you up to date on any potential shortages and savings that this switch will bring.

Additionally, the new Bloomfield, Lynnfield, and Clarkdale desktop families are creeping into the open market. Converge is tracking the i7-920s and i5-750s, which are currently attracting shortage demand.

Pockets of AMD desktop parts sit in excess.
We have been tracking a glut of excess, particularly in the AMD x2 215, which can be found in the spot market in large volumes. Market demand for these parts has been tepid. In addition, Converge has been tracking a number of Phenoms and Opterons in large OEM excess. The difficulty of using many revisions of a particular part makes it less fluid in the open market.

Price decline in 2GB DDR2

Converge Memory Update.

For the first time in over eight months we are starting to see some softness in the DRAM market. The DDR3 market remains stable, but the DDR2 market is showing some signs of weakness. In both SO-DIMM and desktop, 2GB PC800 DDR2 has dropped from the low-to-mid-$50s range to high $40s in a two-week span. This is the first time since March that we have seen a price decline in 2GB DDR2. This decline in the spot market price seems to support why the DRAM manufacturers were unable to negotiate any further price increases in the contract market for the past two contracts. The tier one PC manufacturers are reporting that they have been receiving supplies of DDR2 from their direct channels over the last two weeks. With the upcoming holidays at the end of the month, it's not uncommon to see the memory market soften as we work our way through December.

Converge believes that the memory spot market price for DDR2 will continue to drop slightly between now and the beginning of January. However, we believe that the drop will be minimal and not anything drastic. With the spot market having been 20%-40% above contract for several months now, we are looking for the DDR2 market to drop to or slightly above contract for both 1GB and 2GB PC800.

The DDR3 market should remain stable throughout the remainder of the month. Demand for DDR3 is still strong, and Converge believes it will continue to increase as we head into the New Year.

November 11, 2009

Significant backlog in freight from Hong Kong to Europe and the United States

Converge Freight and Compliance Alerts.

The Hong Kong Association of Freight Forwarding and Logistics is reporting at least 4,000 tons of cargo backlogs heading to the United States and Europe from Hong Kong (as of the first week of November). Affected airlines believe that this backlog will increase and sustain through mid- to late-December. Some carriers report at least two weeks of backlogs. These backlogs are starting to impact regional airports, particularly in China.

Converge is keeping in close contact with its providers to stay on top of this situation.

As in all markets when demand exceeds supply, rates are being impacted. Add in the push of consumer goods to the United States for Christmas, this perfect storm has caused spot market pricing to double (currently up to $4.50/kg) since August.

To manage through these capacity constraints, the Converge freight and logistics teams work with multiple forwarders and these constant communications allow Converge to capitalize on excess spot availability. Leveraging our mix of vendors allows Converge to take advantage of the best transit time versus cost by obtaining multiple quotations. Currently, Converge is reaching out to its network and reviewing options for advanced bookings through calendar year-end.

2010 to bring more shortages and price increases on CCFL LCD panels

Converge LCD Update.

Strong demand from China for TV panels led the recovery in the LCD business in early 2009. As production capacities expanded, however, most panel makers remained cautious about the market outlook in 2010. One reason is fear of surplus, particularly when sales numbers fell below expectations during China's Golden Week holidays in early October. Sony's aggressive pricing strategy and its recent collaboration with Foxconn have also created concerns among panel makers about diminishing profits for TV panels. As a result, TV panels will likely continue a downtrend in pricing in the near future.

Since LEDs found their way into many LCD panels and replaced traditional cold cathode fluorescent lamps (CCFLs) as the light source, there has been an ongoing shortage of models with CCFLs. The trend has intensified, particularly on 14.1", 15.0", 15.4" and some 17.0" panels. Many of these models were discontinued in the past six to 12 months. With just a quick look at the recent demand from the service industry, it is apparent that 14.1" to 15.4" panels are in the highest demand in today's market. It is estimated that this trend will continue well into 2010. The market prices on these highly allocated sizes are expected to continue to rise due to this shortage.

The market for desktop monitor panels has been rather quiet, compared with netbooks and televisions. Pricing remains stable as neither demand nor supply has fluctuated significantly. The introduction of Windows 7, with its newly incorporated touch screen capability, is speculated to ignite a new wave of demand for desktop panels. Currently, the market impact has been modest and will likely continue to be so until more users and software makers begin to adopt Microsoft’s new operating system.

The industrial LCD market continues its calm and steady pace. There may be some short-term instability in the supply chain once the rumored merger between Canon and Hitachi takes place, but the impact is expected to be minimal as each company has a rather modest footprint in the panel industry.

Converge reports significant volume requests for 3.5" SATA HDDs

Converge Storage Update.

3.5" Drives.
We are seeing significant volume requests for 3.5" SATA HDDs in the 320GB through 1TB range. This increase is indicative of widespread shortages across all manufacturers. Box builders are turning to the open market with the largest volume demands seen in CY09. Meanwhile, the requests are less part number specific and more specifications driven in an attempt to secure the volumes needed to maintain production levels. As anticipated in October’s Market Insights, the result is a relative stabilization of contract pricing with an uptick in spot market prices. Again, this trend is expected to continue through Q409 and likely into Q110.

2.5" Drives.
While demand remains steady in the 2.5" market, we are not seeing the same shortage issues as in the 3.5" market. Builders are able to secure the supply needed to maintain production and are turning to the open market for cost savings opportunities and service support for EOL drives. However, we are not seeing the available inventory to support the price point variance requests, suggesting a leveling in the market. As we approach the end of what is traditionally the most robust manufacturing period of the year, it is unclear which way the market will shift. As previously reported, most of the activity is centered on the 160GB–500GB SATA 5400 RPM HDDs.

TI OpAmps returning to a status of significant shortages.

Converge Semiconductors and Integrated Circuits Update.

The market is settling into a consistent pattern of spot shortages and extended lead times, being driven by the following:

  • Texas Instruments (TI) continues to lead the way among companies facing shortage problems with its DSPs, TPS series of converters and SN74 logic series; once again being joined by their OPA series of OpAmps. After quieting down for several months, the OpAmps look to be returning to a problem status of significance.
  • There is no change in the capacitor shortages on Murata ceramic high-CV caps and AVX tantalum caps.
  • Freescale processors and Altera PLDs continue to be short, with the Altera products heating up considerably over the past several days and Broadcom's delivery on some of its BCM5 series Ethernet controllers turning out to be less significant than expected.
  • NXP logic, controllers and LCD drivers have also become tighter over the past several weeks, as have some Tyco high-density connectors.
  • Voltage regulators have also started to show tightness recently, with Infineon and Fairchild leading the way.

The Intel Atom market explodes, driving spot market volume

Converge CPU Update.

As discussed in previous editions of Market Insights, the CPU demand mix for production builds has shifted away from desktops to notebooks and lesser-priced netbooks, which have become the secondary computer of choice. This, combined with the overall mix of reliable and inexpensive technology that has reduced the average cost per chip, means that opportunities for cost savings are abundant for CPU buyers.

In the desktop market, we have identified some encouraging trends for price savings in each of the principal price bands. Currently, the Celeron D 430, E2220, E5300, E7400, E8400 and Q9400 are all available at a cost savings. This represents parts that trade in the $30, $50, $60, $100, $160 and $180 price brackets, respectively, with potential cost savings up to 12%. This is usually caused by oversupply of a particular or similar model.

The picture is somewhat different in the mobile market, where T3000, T4xxx, T6xxx and P7xxx models are in healthy demand when prices fall below their unofficial direct cost, but more often than not we are seeing uneven shortage demands and a sell price of 1% to 2% on either side of direct pricing.

The netbook market and the Intel Atom family are driving unit volume growth in the CPU spot market. After an initial sluggish beginning for the Atom in the spot market, sales have now soared, with primary demand driven by the motherboard and chipset bundle. Demand for the low value/low power Atom chip is the greatest in Asia, while U.K. and U.S. manufacturers tend to prefer their Atom-equipped computers be prebuilt before shipping into their particular markets.

Converge is also continuing to observe steady demand in the server, embedded, industrial and repair markets.

Contract manufacturers tracking Micron chip shortages

Converge Memory Update.

Pricing continues to increase at a rapid pace for both DDR2 and DDR3 memory modules. Earlier in the year market expectations were for another down year for the memory market, and yet at the close of business for October, the DDR2 and DDR3 markets had experienced eight straight months of rising prices. Clearly, computer builders did not see this coming or they would have forecasted for more supply in the second half of 2009. Most builders are getting caught short, and savvy buyers are finding that the spot market has been instrumental in assisting with supply shortages. The sweet spots are still 1GB and 2GB PC800 for desktops and notebooks, and 2GB DDR3 PC1066 and PC1333 for desktops.

While it appeared that DDR3 had stabilized for a few weeks in October, activity has once again picked up as we close out the first week of November. DRAM manufacturers have their hands full as they decide which technology to produce more of so they can take advantage of these high resale prices. Converge believes November will continue to bring shortages for modules as well as for chips. While all the talk is about module shortages, the chip market is also experiencing severe shortages. Micron parts in particular have been on a lot of contract manufacturers' radar screens for shortages, with lead times running 10+ weeks.

October 29, 2009

Converge expands Reverse Supply Chain Services

The market may have stabilized, but demand by manufacturers to streamline their reverse logistics operations is skyrocketing. To meet this challenge, Converge recently expanded our global processing center and hired additional supply chain professionals in all phases of the business. This expansion has increased our overall capabilities to meet growing demand by major technology manufacturers to control costs and boost the efficiency of their service and repair operations.

Our new laboratory in Peabody, MA is ultra-modern, combining the security and specialization required by our customers with thorough electronic components service, repair, storage and shipment services around the world. The lab is complete with testing equipment and protocols identical to the testing schemes of the leading ODMs.

Management of reverse logistics can be a significant cost for large electronics companies. Reverse supply chain partners provide enormous value handling unsold and returned products by establishing just-in-time electronic parts procurement services which streamline service inventories and manage product returns more efficiently.

The link to vendor-managed inventory (VMI) provides more information about these services, and details about the new expansion can be found here.

If you have any comments or questions, please contact us.

October 15, 2009

Customs, Trade and Commerce first-ever meeting on counterfeiting of semiconductor products

Converge Freight and Compliance Alerts.

On Sept. 22, officials from U.S. Customs and Border Protection, the Office of the U.S. Trade Representative, and the Department of Commerce concluded the first-ever meeting with customs authorities from all six major semiconductor-producing economies to discuss the problems posed by trade in counterfeit semiconductor products. The meeting in Jeju, South Korea, preceded the annual Governments/Authorities Meeting on Semiconductors (GAMS), which gathers industry representatives and trade ministry officials from China, Taiwan, the European Union, Japan, Korea and the United States to address topics of importance for the global semiconductor industry in areas such as trade, the environment, intellectual property and regulatory requirements.

According to a joint statement issued after the Sept. 22 meeting, participating officials:

  • Reaffirmed their commitment to protect and enforce intellectual property rights
  • Shared their experiences and best practices in combating counterfeit semiconductors, from both import and export customs-control perspectives
  • Presented options for enforcement actions among GAMS members as well as increased cooperation between members and industry
  • Underlined the importance of having access to information on products and processes from the semiconductor industry to facilitate the identification of suspected counterfeit products
  • Agreed to undertake enforcement measures, as appropriate, against semiconductor counterfeiting
  • Agreed to keep other members informed and to report back on their activities at the 2011 GAMS

The joint statement notes that the worldwide semiconductor industry represents a market valued at approximately $250 billion in 2008. Counterfeiting of semiconductors poses an increasing threat, not only in economic terms for the companies whose products are counterfeited but also to the operation of critical technologies. Semiconductors are increasingly a core technology used in products ranging from mobile phones and car-braking systems to medical devices and satellites.

While these efforts are essential to the livelihood of the semiconductor business they have the potential to add lead time to the delivery of parts crossing international borders. Importers are likely to face increased cargo inspections and requests for documentation.

Dedicated professionals at Converge review all import / export documentation for accuracy, prior to submission to customs, in order to minimize the opportunity for the inspection of cargo. This includes validating manufacturer part numbers, accuracy in pricing and verifying classifications. Additionally, we work closely with manufacturers to assure product is properly classified and to have datasheets available upon customs’ request. Participation in programs such as C-TPAT also highlights Converge’s commitment to all areas of compliance with U.S. and international agencies.

Converge predicts price stabilization in 3.5” storage market

Converge Storage Update.

3.5" drives
While higher-capacity 3.5" HDD direct pricing continues to slide, Converge is tracking a growing number of part number–specific shortages, with spot market pricing rising accordingly. These opposing trends lead us to believe that there will be stabilization in contract pricing in the near term while manufacturers increase production to meet demand. Most reports suggest that this will be the case for the remainder of 2009. This is specific to the 500GB through 1TB SATA HDDs. Meanwhile, we are seeing a slight uptick in open-market pricing in the 80GB thru 250GB IDE and SATA interface drives, with the 400GB capacity unchanged month over month.

2.5" drives
There is little change to report in the 2.5" storage market since last month. We still are experiencing strong production demand, as is typical for the fall manufacturing cycle year over year. Most of the spot market activity is centered on cost-savings opportunities for volume purchases in the 160GB to 500GB SATA 5400, RPM HDDs. The more sought-after brands appear to be Western Digital and Fujitsu. Meanwhile, service activity is centered on the Toshiba and Fujitsu brands. This appears to be reflective of changes in market share reported amongst the major HDD manufacturers for this market segment.

IC shortages and extended lead times continue

Converge Semiconductors and Integrated Circuits Update.

The integrated circuit market has remained fairly consistent over the past month. Spot shortages and extended lead times are continuing for most of the manufacturers that experienced problems in September.

Converge is currently tracking parts that might experience shortages and delays in the following areas:

  • There has been some slight movement in lead times on TI DSPs, TPS series of Converters and SN74 Logic series out to 20–21 weeks.
  • Capacitor shortages are continuing with Murata Ceramic High CV caps and AVX tantalum caps leading the charge.
  • Broadcom has begun to deliver on some of its BCM5 series Ethernet Controller’s, but others still are causing delivery issues for the company’s customers.
  • Anticipated shortages on Dialight LEDs have yet to materialize, but we have seen increasing tightness on Pulse "H" series of Magnetic Transformer Modules and Microsemi is still having shortages on both military and non-military diodes.
  • ST Micro also has started to see some extended lead times, but there are no new concerns for On Semi, Maxim, National and Fairchild.

CPU market speeds along with no clear leader

Converge CPU Update.

In this month’s Market Insights, we examine briefly several of the current trends and continue the commentary on the Intel Calpella as its launch approaches.

A busy market, with many different contributors.
The CPU market has picked up speed again, with several sharp shortages and pools of excess inventory, and without any one particular family of processors dominating the market. The market is very fragmented, but the overall picture is of healthy push and pulls on demand.

Old favorites have a last hurrah.
End-of-life cost savings or shortages are a common occurrence in the spot market. As a CPU passes out of mainstream production it can accumulate in excess or dive into constraint. It is rare that a family of CPUs that has been end-of-life for a number of years reappears into the supply chain in volume. During September, the Intel Core Duo Napa, and Santa Rosa E4400, E7200, T7800, T9600, T2390 and T8100 models provided some of the best value in the spot market. The actual current end-of-life models, such as the T3200, T6400 and E7400, quietly sold at stable price points, which suggested that they still have pockets of demand in the market.

This is indicative of the delays in the launch of the Calpella family. Some OEMs are pushing on with October launches of the i7-920, i7-950, i7-975, i7-720qm, i7-820qm and i7-920xm models. An uncertain market keeps the current Intel Montevina family of CPUs in steady demand.

AMD mobiles’ price variances.
The run on AMD’s older Turion TL series of CPUs largely has come to an end, but the newer TK and QL models have replaced them with excellent opportunities for cost savings. The key issue is that volume and regional differences in pricing are quite sharp, driving price variations in the market. Some of the desktop Phenom, X4, 9850 and 9750 parts also carry similar spot market savings.

Surprise twist: Converge reports DDR2 demand slaughters DDR3

Converge Memory Update.

In a strange twist, the spot market is experiencing a great deal of demand for DDR2 modules when most were anticipating an uptick in demand for DDR3. Spot market pricing has soared over the past four weeks for 1GB and 2GB PC800 material. The 1GB PC800 desktop module has gone from $14 in mid-September to $23 by the close of the first full week of October. Demand remains high and spot market activity has been strong, especially for the 1GB desktop and notebook modules. Although demand for 2GB PC800s does not appear to be as strong, the spot market still has managed to spike from $30 three weeks ago to an average of $43 per module by the first week of October. Converge believes the surge for DDR2 will continue for at least the rest of October and maybe even into the first half of November. We could blame “Golden Week” for the surge in price, but the bottom line is that most material comes from everywhere but mainland China. The supply channels in Asia were open but the amount of product simply was not there.

The DDR3 market still is limited in supply, but demand has not been very strong the past few weeks. Pricing has stabilized after several weeks of increases throughout the month of September. If there is any uptick in demand for DDR3, we anticipate it will occur in the next two weeks.

September 25, 2009

Get Counterfeit Inspection Training with IDEA on October 1

The Independent Distributors of Electronics Association (IDEA) has just announced that it will provide a half-day Counterfeit Inspection Training Seminar in Los Angeles on October 1, 2009. The seminar offers both lecture and hands-on training, with attendees using microscopic magnification to examine real components. The curriculum is based upon IDEA-STD-1010-A: Acceptability of Electronic Components Distributed in the Open Market.

The seminar will be held in conjunction with the IMAPS/NASA Workshop and Exhibit, Counterfeit Electronic Parts; Awareness, Avoidance, Detection and Mitigation on October 1, 2009.

For more details on the IDEA Counterfeit Inspection Training Seminar, view the press release, or visit http://www.idofea.org/register-lax.

September 16, 2009

3.5” drive market experiences price volatility

Converge Storage Update.

3.5" Drives.
The downward trend in the 3.5" market continues month over month, with pricing in higher-capacity drives still falling, which is especially evident in the 500GB, 750GB and 1TB SATA HDDs. We have also been monitoring contract pricing in the spot market for some 1TB drives in the low-to-mid-$80s range. Meanwhile, there is some part-number-specific production and service demand in this same capacity range commanding a premium price with manufacturer delivery dates up to two months out. With supply levels shrinking, we expect stabilization in prices or even an uptick in the coming months for this segment. Demand continues for the 250GB through 400GB HDDs in both the IDE and SATA interfaces, with little change in pricing over the last 60 to 90 days.

2.5" Drives.
Converge is not observing the same price volatility in the higher-capacity 2.5" HDDs as we are in the 3.5" market. This is in contrast to the August Market Insights update, when we were experiencing significant swings week to week. Demand remains strong for both the production and service arenas. As in our last report, most of the activity is in the 160GB to 320GB SATA range. However, we have received requests for 400GB and 500GB of the same interface recently. Similarly, demand for the IDE interface has remained strong month over month, with price points stable.

IC and semiconductor word of the day: shortages

Converge Semiconductors and Integrated Circuits Update.

Converge is currently tracking parts that might experience shortages and delays in the following areas:

  • Capacitor shortages continue with some Tantalum components but are frequently found with ceramic, which includes Murata, Yageo, Vishay, Sanyo, Kemet (Arcotronics) and AVX.
  • TI shortages are the most prevalent, with the primary line being the TPS series of controllers. However, Converge is also tracking Logic SN74 shortages as well. Some logic lead times have stretched from eight weeks to 18 weeks. TMS microcontrollers are still tight. These factors could lead to most TI lines being affected in varying degrees.
  • Xilinx, Altera, Freescale and Broadcom lead times, which were already widening, are definitely becoming an issue -- especially for Broadcom, which has been experiencing a number of issues recently.
  • Microsemi nonmilitary diodes lead times, which were already long, are now stretching out from 18 to 30 weeks.
  • We are tracking preliminary indications that Dialight LEDs may be the next problem area, with some lead time reschedules just very recently surfacing.
  • ROHM has recently announced that a significant number of its resistors have been placed on allocation as well.
  • Last, Converge is tracking an increase in activity for On-Semi, Maxim, National, Pulse and Fairchild components.

OEMs wait for a Capella to take the stage

Converge CPU Update.

Converge is tracking an increase in demand over the August period as indications for September suggest that the holiday peak season has begun. Repair markets have been steady in demand, but cost-savings opportunities are becoming fewer as shortages dominate.

Shortages replace savings.
Microprocessors, which spent the early summer period as a cost-savings opportunity, lurched into shortage during August, with the Intel N270, T9400, T9500, T9600, T3400, E6300, E6320 and E5400 all being sought-after parts. For example, Converge observed a swing of 30 percent in the market price on the T9400, which is an unusual trend during an otherwise stable summer.

Some older reliable processors, such as the Q6600, are stuck in short supply. We have mentioned this model many times in our Market Insights updates over the past year, and it stubbornly remains in demand, with market supply limited.

The repair market was also hit by this late spike in pricing, as it principally affected older parts that were sliding into end of life. However, demand remains steady, with normal supply availability.

Awaiting the Capella arrival.
As we look toward the end of the year, Converge is anticipating the arrival of the Capella family of microprocessors. It marks quite a departure for Intel's mobile market, as Intel seeks to match AMD's Fusion platform. This new family of CPU, chipset and Wi-Fi card will ultimately make the Intel Montevina obsolete, making many OEMs nervous as they seek a consistent brand for the peak holiday season. The arrival of Capella microprocessors was originally scheduled for the third quarter this year, but we understand that delays are expected, with a new release schedule to be announced shortly. The CPUs will feature the i5 and i7 part numbers, which were introduced for the desktop CPU range earlier this year.

Also of interest will be the OEM or TJ models that are expected in the market. Tier-two and tier-three manufacturers, who traditionally do not have access to these processors, will look to the open market to provide the first supply of the T4xxs and T6xxs replacements. Converge will provide updates on developments in future editions of Market Insights.

NOR, NAND technology – not just a flash in the pan

Converge Memory Update.

The memory market continues to rebound, with all indicators pointing to a recovery in more than one commodity. In addition to a DRAM recovery, the NOR and NAND flash memory market has been extremely active. The volume of requests for Spansion and Numonyx flash memory has tripled over the last two months. Supply is tight and quantities are limited for NOR flash, with demand from contract manufacturers significant. Spot market transactions are occurring daily and volumes remain high. While Numonyx continues to grow as a new company and Spansion continues with its reorganization, demand for NOR flash and MCP memory (cell phones) continues to increase, with neither company prepared for an uptick in demand.

The NAND flash market is also experiencing various shortages, ranging from 8GB modules to lesser capacities. Currently, Converge is tracking an increase in demand for Samsung NAND flash, which various flash buyers have attributed to the upcoming holiday build season. NAND flash is still priced reasonably low, and we feel that many contract manufacturers are restocking ahead of an impending price increase.

Lastly, the DRAM market continues to rise. Since late March, DDR2 and DDR3 have steadily increased in price each passing week. Converge is tracking demand for both DDR2 and DDR3 notebook and desktop modules. Due to the large gap between contract and spot market pricing, box builders are still not prepared to take in any inventory at this time. This could change as most 1GB and 2GB DDR2 PC667 and PC800 inventory continues to evaporate in the spot market.

August 13, 2009

Converge Asian Operations Not Affected by Typhoon

We are fortunate to report that Typhoon Morakot has not affected any Converge facilities, employees or key suppliers in the Asia region. The typhoon hit the Philippines, Taiwan and China over this past weekend. Taiwan received more than 80 inches (two meters) of rain, inflicting the worst flooding the island has seen in 50 years. In China, news reports say upwards of 10,000 homes were destroyed by flooding and ferocious winds.

As a company with significant presence in this area, Converge is deeply saddened by the severe damage and loss of life caused by this storm. Our managers in this region are exploring ways to provide any support they can to help in the recovery.

We want our customers, employees and business partners around the world to know that we are experiencing no shipping delays or business slowdown of any kind from this event.

August 12, 2009

Prices eroding faster than the Florida coastline

Converge Storage Update.

3.5" Drives.

In July's Market Insights, we reported that prices were eroding for the 500 GB capacity. Over the last several weeks, the 750 GB and 1 TB capacities have joined this occurrence, with open market pricing in the low $50 range and low $70 range respectively. This is in contrast to 750 GB pricing in the $70–$75 range and the 1 TB capacity at $90–$95 only two to three months ago. On the positive side, pricing for the lower-capacity HDDs has remained stable month over month. Overall, demand remains strong for this period of the year.

2.5" Drives.

The predictions of growing demand and shrinking supply are beginning to take shape in the 2.5" market. We are tracking significant volume requests for SATA HDDs in the 160 GB to 320 GB range. Meanwhile, pricing is becoming more volatile day to day. The service space remains active as well, with part number–specific requests for the aforementioned interface and capacity range. We expect this trend to continue for the balance of the quarter. Similarly, demand for the IDE interface has not weakened. However, activity in this interface appears to be more excess supply and cost savings driven.

Gauging the fallout from the Tessera ruling

Converge Semiconductors and Integrated Circuits Update.

Overall, general IC activity has remained relatively flat compared to last month. However, the shortages discussed in last month’s Market Insights report for the Xilinx Virtex 5 product line continue, as do those mentioned from TI, Altera and Freescale. Activity for ST Micro has increased over the last several weeks, most likely out of concerns regarding the ITC's Tessera ruling. Consumer/telecom demand is still subdued, but demand in the industrial PC and embedded technology sectors are showing some signs of life.

Fallout from the ITC's Tessera ruling has been difficult to gauge, as specific information regarding the judgment has been slow to emerge. Some suppliers have adhered immediately to what they perceive will be the strictest letter of the law, while others have been quick to move inventory to make it available for sale in anticipation of enforcement. In addition, increased customs enforcement by nations in Asia and Europe have made it much more difficult and time-consuming to move certain products, including FPGAs, from one region to another. Converge is advising our customers to add an additional one to two weeks to lead times on parts originating from these countries.

New mobile CPU T4300 is not exciting consumers

Converge CPU Update.

As the summer heats up, the spot market remains cool with no sign of the big shortages that headlined the news in previous years. At this time, we don’t anticipate any late surge. Instead, a spread of demand pockets contributed to respectable CPU demand in July. Currently, we are tracking the following trends:

OEM TJ models see a sluggish changeover.

Demand for mid- and low-range mobile CPUs is continuing for end-of-life technology, while newer models lurk in the shadows. We’ve been anticipating the Intel T4300, T6600 and T3000 chip series to reach mainstream demand in early summer; however, many OEM builders prefer the end-of-life models, as the supply of new parts and customer interest is slow to develop.

At this point in the season, following the Computex event, we would expect to see a big rise in interest surrounding newer models. Relatively flat demand, a large price gap to the new models and a limited supply has conspired to a market reluctant to make a significant move. The T4200 for example is selling at $70+, while the new model T4300 is in short supply, more expensive at $80+ and only boasting a 0.1 GHz faster speed, which is not exciting consumers.

Elsewhere, Atom CPUs are slowly creeping into the spot market in bundle deals complete with chipsets and motherboards.

Xeon savings a worthy quest.

Large cost-saving requirements for Intel Xeon 5140, 5160 and E5420 swept the market in July as customers were actively searching for savings. While a cost reduction of 6% on desktop parts is a good find, for Xeon processors it is not unusual to find 20%+ price differentials from region to region. The supply is uncertain, and volumes are less than mobile or desktop requirements. However, the size of the savings opportunity makes it the best value in this market.

Old favorites headline the desktop market.

The Intel E8400, the popular desktop CPU, has been highlighted in previous editions of Market Insights over the past year. It is not yet scheduled for a price drop, meaning demand remains steady. However, the market price has varied wildly during the summer, swinging from a classic 8% cost-saving part to shortage and back again.

The Intel Q6600 and E4600 processors lead the list of parts in demand and as a result are commanding a premium price. Demand in the spot market for high-end Core I7 desktop processors remains low, resulting in minimal cost-saving opportunities. Converge will be monitoring demand patterns for high-end CPUs and the low-end Atom mobiles in the coming months.

Are DRAM manufacturers squeezing market supply to raise prices?

Converge Memory Update.

The DRAM market continues to show signs of improvement. We are currently tracking increased demand from module manufacturers for 128x8 DDR2 chips, both in PC667 and PC800 speeds. Pricing has increased significantly over the last five months. For example, the average price for a 128x8 DDR2 chip has risen from $0.85 in March to roughly $1.50 in the second week of August. There are mixed opinions on why the market has become so tight for these modules. Many end users believe that DRAM manufacturers are squeezing the supply from the market in order to increase prices. Some are claiming that their demand volume has remained steady throughout the past five months and there should be no reason for the market to heat up, while other end users are experiencing improving business conditions as we head into the second half of the year. All of this could also be leading to an increase in demand.

Either way, the market is steadily improving for both DDR2 and DDR3. The key to sustaining these improvements is to stay the course and avoid drastic spikes and dips in spot market activity. Any sign of inventory "dumping" will erase some if not all price increases in the memory market this year.

July 15, 2009

No significant shortages seen in 2.5" drives

Converge Storage Update.

3.5" Drives
There has been some price erosion in 500 GB through 1TB 3.5" HDDs since our last update. This is not due to a drop in contract prices, but is a result of lower demand coupled with excess opportunities in the marketplace. Meanwhile, demand for 160 GB, 250 GB and 400 GB has remained steady, with pricing unchanged month over month. This is true of both the SATA and IDE interface. Currently, only $2 to $3 separates the 160 GB from the 250 GB capacity. However, the difference between the 250 GB to the 400 GB level, the price jumps over $10 to the high-$30/low-$40 range. Lastly, we are still seeing liquidity in 40 GB, 80GB and 120 GB IDE HDDs.

2.5" Drives
While market analysts continue to speak about shortage and allocation when discussing the 2.5" market, we have not experienced a significant impact yet. We believe this will change in the near term, but for the July/August time frame, availability is expected to remain unchanged month over month. As stated previously, this is particularly true of, but not exclusive to, the SATA interface in the 160 GB through 320 GB range. Finally, activity in lower-capacity 2.5" IDE HDDs remains strong. This pertains to 20 GB to 80 GB capacities in both the 4200 RPM and 5400 RPM speeds. Pricing levels for these drives have not changed since our last report.

IC shortages and lawsuits - oh my!

Converge Integrated Circuits and Semiconductors Update.

As we head into the middle of summer, we have started to track significant increases in the amount of shortage requirements. As reported in last month’s Market Insights, lead times have begun to stretch for many different manufacturers due to limited inventories and reduced capacity at the manufacturing fabs. TI, Altera, Freescale and Xilinx are some of the manufacturers that have been affected. It is rumored that Xilinx is having some major delivery issues on its Virtex-5 due to lower yields at UMC. This has caused some major shortages of certain Virtex-5 chips that are in high demand. Ultimately, this supply tightness might not correct itself until September.

Another potential issue that could affect more than just the IC market is the Tessera ITC patent ruling. This ruling will affect the importation of certain BGA packages from particular suppliers: Freescale, AMD, ST Micro, Motorola and Spansion. Supply and pricing in the United States of these particular chips could be affected, and companies building with chips in the US need to make sure they have taken the necessary steps to ensure adequate supply and firm pricing on these devices. It will be interesting to see how this unfolds going forward and how much of an impact this will have on manufacturers.

Barely a shortage whisper

Converge CPU Update.

Shortages take a vacation
In the past, the summer months have brought not only warm weather, but shortages in the CPU market. And July has always been a busy month in the spot market. Last year, the big Intel end-of-life desktop shortage rolled in around June and kept the market busy until the pre-Christmas season. From the Pentium 4 630s to the 925, and the E6550 to the E8400, desktop parts arriving or leaving the market drive market volume demand.

This year the there are no hiccups to report in the Intel supply chain. The E8400 is still being supported though Q4, and there’s barely a shortage whisper on other desktop parts. It appears that Intel has confronted the trend for the time being. Currently, we’re watching the E7400-500 and E5200-300 model switch for possible signs of a shortage.

Xeons drive reductions
Xeons and AMD Opterons are the current drivers this summer for cost-saving opportunities. This is the direct result of relatively higher pricing, a long shelf life allowing excess pockets to build and many price discrepancies across regions. The spot market is abundant, with many cost-saving opportunities in server chips, which is an unexpected situation given stalling consumer demand.

Laptops continue to lead the way
OEM TJ models and low-end parts are dominating current demand. Broadly, we group the current mobile business into two categories: low-end shortages and high-end savings. Users of the T7, T9 and P9 series should be able to obtain large-margin open-market savings. The T9400, T9600, P9500 and T9500 in particular offer extraordinary value. The T9500 sits direct above $500, while it can trade far below $300 in the spot market. The T4200/T4400 and all the T5 (Santa Rosa and Montevina) and T6 series have been short for the past several months. Celeron Mobile 4 and 5 series are still hard to find. Savings on the end-of-life T6 series can be found, although some OEMs are sticking with the older parts as long as possible. If they are committed to the T6400 and it goes short, they may move up to the T6500 or T6600. Otherwise, it is a lot harder to transition back down the speed range.

DDR3: Everybody wants you

Converge Memory Update.

According to the major DRAM manufacturers, DDR3 demand has been on the rise over the last two months and supply is limited. Sources claim that all DDR3 server DIMMs (dual in-line memory modules) are going directly to the Tier 1 OEMs as quickly as they can be manufactured, with lead times being quoted as far out as the end of October. This may not appear like a long time, but given the state of the memory market for the past two years, any talk of a lead time is big news. The lack of supply in the spot market confirms that parts are becoming scarce. While the DDR2 market remains flat, the DDR3 market is showing signs of life. Pricing is up about 15% to 20% over the last four weeks, and while there was no change in contract for DDR2, DDR3 pricing was up about 5%.

Converge anticipates that the DDR3 market will continue to show activity as we head into the busier build season. The notebook and desktop modules should also see a spike in demand in the coming months. Look for supply issues to occur with UDIMMs (unbuffered DIMMs) as well.

June 17, 2009

Shortage and allocation concerns reappear in storage market

Converge Storage Update.

3.5" Drives.
There has been little change in the 3.5" HDD market month over month. Demand remains steady for 250 GB through 1TB capacity. The $2-$3 price uptick reported in our last Market Insights update for 160 GB through 400 GB devices remains. Similarly, contract pricing on the 750 GB to 1TB capacities is static during the same period. Lastly, we are still seeing liquidity in the 40 GB, 80GB, and 120 GB IDE HDDs.

2.5" Drives.
The terms “shortage” and “allocation” are being widely used to characterize the 2.5" market outlook. As a result, demand remains high even as we approach the historically slowest HDD quarter of the year. Again, this is particularly true but not exclusive to the SATA interface in the 160 GB through the 320 GB range. Meanwhile, pricing for these capacities has increased by $1-$2 each since last month’s report. Finally, we continue to see regular part-specific service demand in all SATA capacities.

Slashing of distribution inventories leads to real shortages

Converge Semiconductors and Integrated Circuits Update.

In tracking the market, Converge does not expect any significant changes in demand over the next several months, continuing the holding pattern that the IC market has seen in recent months. Manufacturing fabrication capacity is at the lowest it has been in a considerable amount of time, and distribution inventories have been slashed to minimal levels. However, for the second month in a row we have seen a month-over-month increase in real shortages due to these low inventory levels.

Some customers are still trying to reduce inventory levels, although the number of those doing so has decreased somewhat over the last several months. Nevertheless, there is still available inventory in the market for savvy bargain hunters.

Additionally, Converge is tracking a minor reduction in demand in some military sectors, indicating a slowing of new manufacturing over the next 6-12 months. Demand for military connectivity devices, however, appears to be unchanged, as the repair business remains steady.

The tiny Atom has yet to take off in the spot market

Converge CPU Update.

May was a steady month in CPU activity, with a focus toward new product launches at the Computex show in Taipei in early June. For this edition of Market Insights, our report will focus on two differing developments in the mobile and desktop markets: the failure of the tiny Atom to take off, and the surprise resurgence of the old heavyweight desktop processor.

The Intel Atom.
As the first generation of Atom processors slides into end of life, it is worth looking at its impact on the spot market. These low-cost, low-speed chips for netbook and other mobile applications arrived on the market with much fanfare but have not yet caught on to be actively traded in the open market. Intel estimated that the Atom accounted for approximately 20% of its mobile processor shipments in Q1 09, while spot market contributions were at a modest 6%-7%. The margins from the low-cost chips, combined with the frequent need to bundle with a chipset or small board, mean that the parts are not simple to move. It is interesting to note that as of yet, AMD has no direct competing technology to the Atom. Perhaps we will see a rise in demand as main models, such as the N270, are replaced by the N450.

Boxing clever.
The month of May saw a reemergence of demand for the desktop CPU at retail. In the past, the high cost of shipping retail desktops made them an uneconomical option, as the boxes contain a heavy cooling device that dramatically raises shipping costs while eroding margins.

With the introduction of inexpensive Intel cooling fans in the spot market, Converge has been able to bundle the fans and CPUs together in kits complete with full three year warranty providing a cost-effective solution to box builders. This has resulted in a resurgence in desktop demand in the spot market, as market cost variances are once again favorable.

Concern about DDR3 supply situation for next 2 - 3 months

Converge Memory Update.

Despite several contract price increases since the beginning of May, the DRAM market remains relatively quiet. Module activity in the spot market remains absent; however, we are tracking an increase in inquires for DDR3 - especially for server modules. Although there have not been any significant spot market buys for DDR3, there has been some concern regarding their supply situation for the next 2-3 months. Spot market pricing for DDR3 is much higher than direct prices, in some cases as much as 10%-15% higher. Converge believes that the box builders are increasing their output of systems with DDR3 memory for the upcoming build season. The DRAM manufacturers aggressively priced DDR3 to speed up the adoption rate, and it appears to be stimulating some demand. There do not appear to be large quantities of DDR3 product available in the spot market, so this could be a development worth watching.

May 13, 2009

The storage market offers few surprises

Converge Storage Update.

3.5" Drives
Demand continues to rise for storage devices in the 3.5" market. This trend began the first month of the first quarter and has continued to the present. Currently, we are experiencing an uptick in pricing on 160 GB through 400 GB capacities month over month. This translates to approximately $2 per hard drive in that range. SATA HDDs are less expensive by $2 to $3, compared to IDE HDDs of the same capacity. There has been little to no change in pricing for 80 GB, 500 GB and 750 GB capacities when compared to April prices.

2.5" Drives
The 2.5" storage market is in a state similar to that of the 3.5" market. Amid reports of decreased inventory levels, coupled with production issues, we are tracking a spike in demand. This is particularly true of, but not exclusive to, the SATA interface in the 160 GB through 320 GB capacities. Pricing has remained stable, with increases expected in the near future as specific capacities and speeds become scarce. The market remains active in the lower-capacity IDE drives as well. This is evident in the 20 GB through 80 GB capacities in both the 4200 and 5400 speeds. All capacities in this range are liquid, and open-market pricing has remained remarkably stable.

The good, the bad and the semiconductor manufacturers

Converge Integrated Circuits (IC) and Semiconductors Update.

There has not been any significant change to the integrated circuit (IC) market since our last Market Insights report. Once again, we are tracking some sporadic shortages in some product lines, but nothing that is sustained over a long period. Most of these shortages are due to small upticks in demand. With many semiconductor manufacturers cutting back on production, and less product on the shelf at franchise distributors, it is more difficult for OEMs and CEMs to quickly pick up supply to solve these spot shortages.

However, there are still plenty of cost-savings opportunities in the spot market, given some of the excess material that exists in the market. With some customers slowing down or cutting production, there are some great potential cost savings available to customers. In addition, companies with date code flexibility can certainly take full advantage of this market and the opportunities it presents.

Converge does not expect any significant changes in market conditions over the next couple of months, although some predict the market will experience an overall uptick at the end of this year. That would certainly have a significant effect, given all the shutdowns and cutbacks by semiconductor manufacturers over the last year. Some of that optimism could be tied to what some see as the beginning of the turnaround of the global economy. For now, the market waits.

AMD Rides Again

Converge CPU Update.

The CPU market in April, if viewed against previous years, could be described as being steady with a seasonal calm in demand. However, Converge remains optimistic based on signs of a potential recovery and upswing in May and is encouraged by new opportunities that exist in the marketplace.

Mobile shortages drive demand.
Over the past several months, Converge has been tracking a clustering of demand around lower-priced processors. A shortage of mobile processors in the lower segment of budget CPUs resulted in increased demand for these processors on the spot market in recent weeks. T2390 and T3200 all the way up to T6600 models remain in short supply and high demand.

Rumors return of a tightening of desktop processors.
Several slightly older desktop microprocessors are rumored to become in short supply in May. This list includes E2200, E2220, E5200, E7400 and E8400 processors. The E7400 and E8400, at the time of writing of this update, remain the best-selling parts at a cost savings; however, we anticipate a tightening of supply heading into the summer months, driven by the traditional phasing out of older technology. In addition, due to a history over the past four summers of a burst of excess and obsolete shortage desktop activity, it is advisable to monitor this space carefully. Converge will monitor and report in future Market Insights updates.

Atoms are puzzling.
The spot market has not fully cracked the potential of the Intel Atom market. To date, demand is present; however, a surplus of large-quantity inexpensive excess has yet to emerge. We anticipate more customers will turn to the Netbook models, as it is sure to become an increasingly important open-market segment. For the short term, demand is maintaining pricing levels in the spot market.

AMD rides again.
AMD parts remain in demand in the spot market, especially for the mobile processor. In the past the Athlons, Semprons and Opterons provided good savings opportunities as AMD provided wildly differing prices, not only by region or country, but also by customer. The market has long since settled, but we do see opportunities existing in the new mobile range of Q, R and Z parts.

DRAM market volatility on the horizon

Converge Memory Update.

Over the last several weeks, there has been a lot of uncertainty in the memory market as DRAM manufacturers attempt to cut supply from reaching the spot market. These tactics are intended to raise prices to justify a substantial increase in contract prices for the first half of May, which will settle 10%–12% higher. Spot market pricing has also gone up over a two-week span. Prices for 1 GB PC800 modules have risen from $9.50 to $11.00 and for 2 GB PC800 modules from $19 to a high of $22 as of May 8.

Although there are some signs of product tightening, Converge believes that the next four to six weeks will be extremely volatile in the DRAM market. The games will continue between the DRAM manufacturers and end users as they try to gauge what the true supply situation will be heading into the next two months. Converge believes that the next three weeks in particular could produce significant swings in the spot market for both price and supply. There is a holiday in the United States, Hong Kong and Taiwan during the last week of May, which could affect supply and demand. Vendors may look to position themselves a little earlier than normal for the month end, which could have a negative impact on price. If that is the case, we should see more supply in the market for month’s end.

April 15, 2009

Is a severe DRAM shortage in the cards?

Converge Memory Update.

There has been a lot of chatter over the last month or so about a possible severe shortage in memory by the end of 2009. It’s not really that far-fetched if you think about it. The memory market has been in a prolonged slump for over two years, and the biggest casualty has been DRAM. Although the flash memory market has also suffered severely, DRAM stands out the most because of its volatility, the range of end user markets and the volume of revenue produced from its sale. When one refers to memory, the first thing that comes to mind is, “What is the price of DRAM today?” That is what investors want to know when it comes to the state of the memory market.

The amount of money lost on DRAM has reached historic levels, which has prompted a series of events that could result in the perfect storm for a severe memory shortage. Qimonda filed for insolvency, which has resulted in a loss of jobs, reduction in output and a closure of fabs. The amount of Qimonda product in the market is quickly evaporating, which is forcing end users to use other manufacturers. Samsung, Micron, Elpida and Hynix have all cut back on CAPEX; reduced output (in some instances as much as 50% over the last year); and manipulated their workforce through either layoffs, reduced hours or job elimination. Finally, the Taiwanese DRAM manufacturers have been forced to merge companies in order to survive. This move will certainly eliminate sourcing options and stabilize prices. Even with all these moves already in motion, the price of DRAM remains at historic lows and supply remains abundant.

Looking back, it has been years since corporate spending has had an impact on the memory market. When the economy does turn around, Converge believes that the corporate market will make it a priority to update older computers, IT infrastructure and outdated servers. When this does happen, we believe that volumes will be high. That will no doubt trigger a shortage of memory. After two straight years of underinvestment, the DRAM manufacturers will simply not be positioned to handle this type of demand. It will take time to get fabs back up and running, hire staff, and increase output levels to meet demand.

Mobile shortages drive CPU spot market

Converge CPU Update.

In this update, we look at the curious case of AMD as an open-market channel, the continued hegemony of mobile CPUs and some unexpected desktop shortages.

AMD – an unpredictable open-market beast.
AMD (Advanced Micro Devices) has never acted like its chief rival, Intel, which announces and schedules price drops during the year. Instead, with AMD, different pricing per SKU can be offered to customers within the same region. This makes AMD a different animal on the open market, accounting for a smaller percentage of the overall CPU market share. Additionally, unconfirmed rumors of a pending price drop in April/May, and which parts will be affected, have caused concern among vendors and customers alike.

On the positive side, we are tracking an increase in demand for AMD mobile chips. End-of-life models such as TL50-64+ are good cost savers in emerging markets or service environments; current models in the QL/RM/ZM series are also providing good spot savings opportunities.

Mobile shortages give market a lift.
The month of March brought a number of shortages in mobile CPUs. Intel parts at the lower end of the scale such as Celeron mobiles; T3, T4 and T5 OEM models; and the BGA SP9300/400 were also affected. The higher-end P8400 is proving hard to find as it moves into end of life, while the P8700 processor slides into supply. Demand for the Intel Atom has been on the rise and excess has been nonexistent. Customers are looking for the Atom family with or without the chipsets that are normally bundled with them. Those who currently have inventory decline to sell, fearing that Intel will not be able to keep up with demand for the popular netbooks.

Customers continue to cluster around the lower–to-midrange models. As mentioned in previous Market Insights reports, there is cheap excess of higher-end parts, and, in March, the T9500, T9600 and some of the X9… parts were available at a cost savings.

End-of-life Napa parts (T2250-T7200) are an excellent value now, and even some of the older Santa Rosa models such as the T8100 have enjoyed a revival through last-time excess saving buys.

A quiet desktop market.
Older desktop Celerons enjoyed a last hurrah in March, with dozens of customers looking for last-time buys. The parts are short and becoming less popular in common production, with the E1 series taking over. Nevertheless, CD 430/440/450 were very active and were trading about $5 above their normal price. The E8400 and E7400 continued to offer moderate savings, but as these are both high runners on most OEM’s AVL, demand remains high and stable.

A few dollars separate 80 GB - 320 GB storage capacities

Converge Storage Update.

3.5" drives:
There has been little change month over month in the 3.5" market. Demand for 3.5" IDE and SATA HDDs is on par with March. Pricing for 80 GB through 400 GB has increased slightly in the open market. Converge believes this is a combination of the need for cost savings, alternative solutions and shrinking supply. There is a pricing logjam in the 80 GB through 320 GB range, with only $1 to $2 separating capacities. This holds true for both SATA and PATA. At the 400 GB level, prices increase sharply to the mid-$30 range, with 500 GB and 750 GB in the high-$30 and mid-$50 ranges, respectively.

2.5" drives:
The trend continues in the 2.5" market month over month, with an increasingly positive outlook for Q2. Converge is still monitoring increased part number–specific demand for the SATA interface in the 80 GB-through-320 GB range for both service and production. The preferred brands are Toshiba and Fujitsu, followed closely by Western Digital. Inventory levels seem to be decreasing as pricing has stabilized for these SATA capacities.

The 2.5" PATA market remains unchanged from March. Excess opportunities remain scarce, translating into increased demand and prices. This is true from the 20 GB up to the 80 GB capacity in both the 4200 RPM and 5400 RPM speeds. In both interfaces, the 7200 RPM speeds carry a significant price premium.

Programmable logic devices (PLDs) are in demand

Converge General Integrated Circuit (IC) Update.

Although March was slightly more active than February, we are seeing the general integrated circuit market once again slipping into a holding pattern. Converge has been tracking occasional upticks in demand, but nothing that appears able to sustain anything noticeably different from the normal demand patterns of the last six months. OEM/CEM customers are still trying to move excess inventory, shop for savings and control costs through better procurement planning including just-in-time (JIT) deliveries.

Programmable logic devices are still one area where demand seems to be consistently tighter than in the rest of the market. Altera PLDs are still somewhat tight, and we are seeing an increase in activity on Lattice PLDs as well. Freescale Processors and TI DSPs have joined the Broadcom and PMC networking chips in pulling back slightly on demands, but we have seen some spot shortages showing up on some Maxim, Linear Tech and Analog Devices chips.
We expect this holding pattern to continue for several months, though there are indications that we will see “non-widespread” spot shortages spread to some other manufacturers.

March 18, 2009

Pricing for 500 GB - 1 TB HDDs continues to fall

Converge Storage Update

3.5" Drives
Demand for 3.5" IDE and SATA HDDs in the open market continues to follow February’s trend. The 160 GB through 400 GB capacities are liquid and moving in volume. However, Converge believes that low price points and excess stock are the driving forces, as opposed to increases in production. Currently, only $1 to $2 separates HDDs in this range. This holds true for both SATA and PATA.

While pricing has remained stable for the aforementioned capacities, pricing for the 500 GB through 1 TB HDDs continues to fall. Looking back to last year, we saw a 30%+ decline in direct pricing for 1 TB devices from Q3 to Q4. With current 1 TB price points in the low $100 range, these sharp decreases appear to have carried over into Q1 09. A similar situation is happening for 500 GB and 750 GB HDDs. Last, there is spotty demand for part number-specific 80 GB hard drives and little activity in lower-capacity drives.

2.5" Drives
In the 2.5" market, we continue to track part number-specific demand for the SATA interface in the 80 GB through 250 GB range. In addition to these service requirements, we have seen several large-quantity inquiries for production purposes. These requests have been primarily for the 160 GB and 250 GB capacities.

Currently, there are fewer excess opportunities for the PATA interface in the open market. This has translated to a slight uptick in demand, with pricing remaining stable month over month. The 80 GB 5400 RPM 2.5" IDE is the most sought-after device, with price levels for this drive at approximately $30.

Spot shortages due to franchised distributors reducing inventory

Converge General IC Update

Demand in February was softer than anticipated for general integrated circuits, as customers are working toward keeping inventories low while waiting until the last possible window to place orders. March has begun stronger; however, we are also tracking an increase in excess inventory lists being made available to the spot market.

Although activity decreased somewhat in February, we are tracking an uptick in demand for some Tyco connectors as well as increasing lead times on some Altera PLDs. Demand has remained steady for Freescale processors and some TI DSPs, while softening for PMC and Broadcom networking chips.

Opportunities remain strong for buyers looking to take advantage of available excess. However, we are starting to see isolated spot shortages, primarily as a result of franchised distributors working hard to reduce their inventory levels.

An $800 processor at half price

Converge CPU Update

Intel’s dramatic drop in profits for Q4 2008, combined with the closing of several factories, cast a cloud of doubt over the CPU market at the beginning of the year. However, the market remains calm, as an anticipated glut of excess inventory resulting from the recession has not emerged. Microprocessor prices remain firm while February and March have seen a gradual easing of traditional production demand.

Overall, pricing of the popular TJ OEM model CPUs (T2390, T3200, T5800, T6400, etc.) has not receded, while midrange desktop CPU models E2220 and E5200 are trading at, or slightly below, direct pricing.

While demand remains moderate, our tracking indicates that customer requirements are moving from low-end Celerons and high-end Montevinas toward midrange CPUs. Converge believes that this trend is why pricing remains steady – with demand congregated around 10 SKUs on mobile and desktop units.

Elsewhere the situation remains more volatile.

High end sees hard times
The X8100 processor is a high-end CPU that would make even the biggest “techie” jealous. It is a Core2 Extreme edition mobile processor and, at $800+ direct, priced above most complete laptops. Similarly, the Santa Rosa T9500 is a high-end processor currently priced at $525 direct. Both are currently available in the spot market as OEM excess at roughly half price. Now is the time to procure these processors for big savings.

For desktops, the older QXXXX models are once again trading below direct pricing by as much as 20%.

Embedded products revive demand
The proliferation of embedded products has revived the demand for older processors. For example, the Celeron M 300 series of microprocessors, which had their production heyday in 2004, sold for $30-$50 per unit. Today, as an embedded product, direct prices for the same product are usually above $60.

OEMs with excess inventory of older low-voltage Celerons, NAPA T7200 or T7400, for example, can find sales opportunities in the spot market. Contact Converge to learn more.

Is the memory market back at the bottom?

Converge Memory Update

Is the memory market back at the bottom again? After a brief uptick in DDR2 pricing, the market has quickly fallen back to trading in a price range not seen since the pre-Christmas holiday season. Contract pricing remains flat while DDR3 contract pricing is on par with DDR2. Spot market pricing for 1 GB modules is in the $8-$9 range while pricing for 2 GB modules is in the $16-$17 range. Whereas activity in the spot market for DDR2 has become nonexistent, pricing for DDR3 is still much higher than contract prices. Converge believes that this is a result of vendors being stuck with higher-priced inventory that experienced the sudden and steep contract price reductions that transpired over the last few cycles. Currently, the outlook for DDR2 and DDR3 remains flat, while the market will most likely remain at current price levels for the next several months.

The SDRAM market continues to show strong activity. Pricing continues to move upward, although not at the pace experienced during the first two months of the year. Currently, we do not forecast any slowdown in this activity. Demand remains high, and the transaction volumes remain steady, with Samsung, Qimonda and Elpida the three main manufacturers experiencing the most product requests.

February 18, 2009

Memory market shows signs of life, but at a price

Converge Memory Update

After a horrific 2008, the market is showing some signs of life, but at a price. Last month, Qimonda filed for bankruptcy, but that really was not a surprise. The only surprise was that it took this long to occur. The impact of the announcement was a spike in SDRAM, DDR1 and DDR2 pricing. As reported last month, Converge believes the SDRAM spike is legitimate and will continue through the coming months. The market has been extremely active, with many requests for quotes on PC133 products. Spot market pricing has increased as much as 40% since January 1, and we believe this trend will continue.

However, after a significant jump in spot market pricing, DDR2 prices are beginning to retreat. As the mainstream memory in PCs and notebooks, the demand for DDR2 is simply not sufficient to justify a price increase. At one point, 2 GB PC800 modules were as high as $24, which is about 30% above contract pricing. At this price point, there were no signs of any buyers. The 2 GB modules are back down to $20 and there remains room for prices to come down further.

What to watch for over the coming months

  • NOR flash pricing will increase now that Spansion has filed for bankruptcy and Numonyx continues its attempts to get organized. Many contract manufacturers are expressing concern over the lack of communication with Spansion and lead times being pushed back.
  • NAND flash is also showing signs of rebounding. Part of the cutbacks made by the DRAM manufacturers will ultimately impact the NAND market as well, as the spot market has been active with NAND transactions over the past several weeks.

Playing a guessing game in a strange marketplace

Converge CPU Update

Playing a guessing game in a strange marketplace
To this point in 2009, we have yet to see the predicted market slowdown or the expected flood of OEM excess inventory.

With a number of negative forecasts occupying the headlines, the market had been bracing for a sharp fall in postholiday demand. However, February has proven to be resilient, with typical demand in the spot market and stable pricing for most processor parts. In addition, shortages have been infrequent while excess inventory has held at a steady trickle.

Emerging trends
When or how the economic downturn will affect microprocessor demand is yet unclear, although there are some useful pointers regarding demand in the coming months:

Service and repair demand is flourishing
Demand from the service and repair sector is flourishing. This phenomenon occurs as consumers prefer to upgrade and repair old computers rather than buy new systems. Specifically, out-of-production CPU business is the area with the most growth. Old Pentium 4s, retired Xeons, or old core duo and Pentium parts are being sold more frequently in small-volume deals.

An interesting new supply channel has also emerged, as excess inventory from embedded computer builders is meeting service demand at tier-one OEMs for out-of-production laptops.

Embedded computers, such as ATMs, generally use older models of microprocessors. For example, the T7400 has reached the end of production for laptop builders but is a currently a part utilized by telecom contract manufacturers.

Quantity of smaller orders is on the rise
Current order trends reveal that customers in general are ordering their usual January/February components, although now more frequently and in smaller quantities. For example, rather than purchases of 1,000 pieces of a part once a month, we are tracking the same order four times a month in batches of 250. Customers, watchful of stock levels, are prepared to hold less and buy on an as-needed basis. This presents some challenges, as lead times need to be shortened and pricing can be volatile.

Atom attracts interest
The miniature Intel Atom processors have begun appearing regularly in shortage requirements. Often sold along with chipsets, these CPUs maintain strong demand. These processors power the smallest of laptops and, as of now, can be purchased below current Celeron pricing. Good value CPU-chipset bundle deals can also be found in the spot market as large price differences are occurring regionally.

Look for inventory reduction opportunities in the months ahead

Converge General IC Update

General IC activity is certainly slower than this time last year. Although activity is softer, opportunities are still presenting themselves for customers looking to save on cost and take advantage of the inventory reductions occurring in the manufacturing space.

Spot shortages currently exist in some areas where Altera PLDs, Freescale processors, Broadcom networking chips and scattered demand for Vitesse transceivers remain in tight supply. There has also been some renewed activity on TI and Analog Devices DSPs. February has seen renewed activity on military connectivity devices, and although military activity in general seems to be slowing, problems with Microsemi’s mil-spec diodes continue.

We are still tracking a number of inventory reduction opportunities from January, and we expect this trend to continue in the coming months. Now is the time for savvy buyers to shop for bargains while excess inventory is available in the market.

Uptick in activity

Converge Storage Update

3.5" Drives

Converge experienced a significant increase in both IDE and SATA demand from the second half of January through the first half of February. This is true in the 80 GB through 500 GB capacities for refurbished HDDs in the open market. Meanwhile, pricing has remained stable. We expect this trend to continue through the first quarter of 2009. Demand remains tepid for sub-80 GB capacities and prices have fallen accordingly. Direct pricing on 750 GB HDDs and higher continues to fall, although this has had little impact on the lower capacity pricing since our last report.

2.5" Drives

The majority of the activity we have been tracking in the 2.5" market has been part-number-specific requests for SATA drives used in service and production, with demand and sales steadily increasing month over month. Current demand includes 120 GB through 320 GB capacities. A significant disparity remains between pricing for excess materials and demand-driven pricing based on capacity and speed. We have also experienced increased inquiries for 2.5" IDE HDDs. Requested price points are typical of excess product–driven deals. Desired capacities range from 40 GB through 80 GB; however, few of these opportunities exist presently. Lastly, there has been an uptick in activity on the SAS interface in the 2.5" FF. The most desirable drive of this type is the 146 GB and 300 GB Seagate 15K RPM.

January 22, 2009

PATA interface continues to command higher pricing than SATA

Converge Storage Update

3.5" Drives
Demand and sales volume decreased significantly during the second half of December 2008. However, this trend has reversed in early January, although pricing continues to decline. Direct cost on the 1 TB HDDs is approximately $100, while the 750 GB capacity is in the low $80 range. This sharp decline, quarter over quarter, has impacted open-market pricing on all lower capacities. The 500 GB, 400 GB and 250 GB can be found at $45, $37 and $28, respectively. The 320 GB is not readily available. PATA interface continues to command higher pricing than the SATA interface, at $2 to $3 per drive. Although we are seeing volume sales, it is opportunity and price driven.

2.5" Drives
Converge has seen increased activity in the 2.5" market. This activity is specific to the SATA interface in the 160 GB capacity and higher, and is part number driven. For example, most of the requirements we are receiving are for the Toshiba and Western Digital brands. Otherwise, the market continues to decline with little speculative purchases. Outside of the demand-driven market, pricing for the SATA interface can fluctuate widely because many integrators need to purge excess inventory. There is little change in IDE pricing, month over month, in the 80 GB capacity and higher. Meanwhile, pricing for the lower capacities has dropped significantly, with 20 GB, 30 GB and 40 GB HDDs selling at $16, $19 and $22, respectively.

Early indications of renewed tightness on mil-spec connectors and Microsemi diodes

Converge General IC Update

December activity was softer than normal, caused primarily by some extended holiday shutdowns due to the slowing economic climate. December is typically a time when OEMs and CEMs focus on moving excess inventory - a strategy that also was affected by the economic climate in the form of greater emphasis on excess opportunities.

December did present short-term procurement problems for some customers who needed Freescale processors, which have shown tightness for several months, as well as some Broadcom networking devices such as Ethernet switches, controllers and transceivers. Altera still is experiencing some spot shortages, but some of the difficulties on Analog Devices products seem to have eased. As this trend continues into January, we also see early indications of renewed tightness on mil-spec connectors and Microsemi diodes. The tantalum capacitor shortages, driven by raw material price increases that were anticipated several months ago, have yet to materialize, while the isolated ceramic capacitor shortages we experienced through most of last year have disappeared.

Opportunities for cost savings still are in demand as companies try to take advantage of current excess opportunities in the market.

Semiconductor chips present margin opportunities

Converge CPU Update

A shortage market when least expected
January was forecast to be a grim month for the CPU market, with demand expected to slow after a weak holiday buying period. Instead, a series of mobile CPU shortages combined with early price drops encouraged OEMs to sell inventory into the open market, creating new cost-saving opportunities.

There are a number of factors contributing to this activity. Intel cut its supply of TJ midrange OEM CPU models, while a cluster of shortages on T2390, T3200, T3400, T4200, T5800, T5900 and T6400 chips caused prices to increase by 10%.

In addition, the upcoming Chinese New Year in late January typically sees a reduction in a significant portion of the supply channel, which means that beginning-of-the-month rising prices have no time to soften.

Launches and drops
January 18 saw new Xeons, desktops and several mobile CPUs arrive on the market, prompting price drops on existing models. This had a domino effect, as several OEMs that were affected by these changes pushed their inventory parts into the spot market.

This dynamic continues on a daily basis. Converge recommends that OEMs and CEMs monitor the spot market continually for cost savings, as semiconductor chips are available in various quantities and present margin opportunities.

A grim PC outlook provides opportunities
Intel’s profit projections act as a weathervane not only for our CPU market, but also for the computer market as a whole. After two profit warnings in December 2008, it was no surprise when the chipmaker announced a 90% profit drop for its fourth quarter. This was the first time in 20 years that its third quarter earnings were higher than its fourth quarter results.

Intel’s explanation of its shortfall echoed the concerns of many PC builders: Managing inventory levels was going to be a major challenge for the coming months.

However, Converge believes this situation creates positive buying opportunities within the open market, as independent distributors are adept at identifying excess inventory creating cost saving opportunities.

Converge predicts SDRAM activity will continue

Converge Memory Update

Activity in the DRAM market has been surprisingly steady in the first few weeks of January, with most activity taking place on SDRAM PC133 chips. While the DDR2 market remains quiet, SDRAM is experiencing a boost in open-market activity. Converge believes that SDRAM activity will continue for several reasons. Contract manufacturers still use large quantities of 128 MB, 256 MB and 512 MB PC133 chips. Many of the DRAM manufacturers are producing less SDRAM and soon the technology will be phased out all together. And pricing still is low enough for contract manufacturers to take advantage of cost-saving opportunities, before the market starts to dry up heading into the second half of this year. While we believe that the DDR2 market will remain in oversupply for at least the first half of 2009, SDRAM could be where the opportunities exist in the open market.