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.