Due to fairly high inventory levels and relatively weak demand, the oversupply of dynamic random access memory is likely to widen tangibly from this quarter’s level in the second quarter, claims investment and banking firm JP Morgan. The imbalance can lead to memory price drops and losses among makers and suppliers of DRAM.

Supply for DRAM Exceeds Demand

According to JP Morgan, DRAM saturate is likely to extend from 2% this quarter to 10% next quarter due to weaker demand and increasing inventory. Even though several global manufacturers of memory are transiting some of their production from DDR chips to DDR2 and NAND flash production – which may alleviate some imbalance in the market – JP Morgan believes oversupply will not ease until the fourth quarter, DigiTimes web-site reports.

Some Taiwan-based memory makers are more optimistic than JP Morgan and claim the situation will be easier as early as in May, 2005.

Memory Makers Reportedly Offer Price Protection

Meanwhile some manufacturers of memory from Taiwan and South Korea begin to offer the so-called price protection for their clients. According to a report from Taiwanese press citing sources among DRAM makers, the manufacturers offer to refund the amount of any price-reduction that occurs within one month of purchase (or up to one quarter in some cases). By implementing price protection, the DRAM makers are making it easier for buyers to place additional orders before the memory price hits the bottom.

When asked to comment on the price protection policies, memory manufacturers either refused to comment, or denied the existence of such practices. It is unclear whether it is legal to offer price protection.

While low DRAM prices may favour end-users, they do not favour the market in general, as if memory makers suffer losses, then tend to increase pricing after the crisis is over to compensate, which causes overall instability.

DDR, DDR2 Become Cheaper

At press time average spot price of 256Mb DDR SDRAM memory chip (266MHz or 400MHz) was $2.43 to $2.78 depending on organization, according to DRAMeXchange. The lowest contract price on 256Mb DDR DRAMs was $2.81. In mid-January, 2005, 256Mb memory chips cost approximately $4.07 at spot-market, while the lowest contract price on them was $4.31 per unit. At the end of May, 2004, spot market’s average price of 256Mb DDR memory chips was $4.80, while the year’s peak was at $6.30 per device in early April.

Currently 512Mb 333MHz DRAM device costs $5.44. In mid-January 512Mb DDR chip at 333MHz was quoted at $9.06 in average.

Average spot price of 256Mb DDR2 memory chip at 400MHz and 533MHz was $4.95 and $5.51, respectively, in mid-January, 2005. Common cost of 512Mb DDR2 device at 400MHz and 533MHz today was $10.83 and $11.13, respectively. At press time 256Mb DDR2 chips at 400MHz and 533MHz cost was $4.32 and 4.74, respectively. General quote on the 512Mb DDR2 devices at 400MHz and 533MHz cost was $8.76 and $8.95, respectively, at press time.