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.