Rocketing inventory levels ring in New Year for DRAM market

Just when the DRAM has managed to drag itself through a terrible 2011 it seems there are more woes on the way over the next 12 months as inventory levels spiral out of control.

According to a report by IHS, DRAM stockpiles have increased massively in the past few quarters, threatening to hurt already rock bottom chip prices.

Unless by some stroke of luck you happen to be Samsung then times are very hard in the DRAM industry at the moment, with finances largely in the red as firms such as Micron talk of industry consolidation.  Shifting production over to more profitable NAND flash has also been an option in a bid for survival, as even the mobile DRAM market is on shaky ground.

So reports that growing inventory levels are eschewing the downward trend of other areas of the semi industry will elicit more groans from the DRAM industry, if not surprise.

Apparently the IHS iSuppli DRAM Inventory Index of supplier stocks in the third quarter of 2011 saw a 31 percent increase to 12.8 weeks, up from 9.8 weeks in the second quarter.   This means a doubling of the recent low point of 6.1 weeks at the start of 2010, and still way above the long term average 9.2 weeks.  Worryingly analysts reckon that the bulging inventories could continue to rise for a few more quarters.

This means that further pressure is being put on chip prices. Combined with a lack of demand around the world and new devices which call for less DRAM, such as Intel’s Ultrabooks, the outlook continues to look bleak.

The continued popularity of tablets is also knocking sales, and is putting the breaks on consumers upgrading to traditional DRAM-hungry notebooks.

A lack of capital expenditure investments is hurting the move to smaller process technologies –  largely thought to help boost DRAM over the next year or so – though again if you happen to be moneybags Samsung this is less of a problem.

Against the backdrop of this seemingly all-pervasive doom and gloom, analysts have whipped out their calculators and estimated that DRAM revenues fell by more than $6 billion in the final quarter of 2011.  Apparently similar situations have shown that a further downward trajectory is expected, and the “worst is yet to come”.

One small glimmer of hope was offered as inventory levels continue to wrack up is that change to the global economic situation could see the DRAM market swiftly turn around.  Of course, our breath shall not be held for this moment.

As mentioned, the rest of the chip industry is managing to keep inventories more in check.  Instead these declined in the third quarter, putting a halt to increases over the preceding several quarters. This meant a 2.5 decrease from levels seen in the second quarter.

Levels had been on the up since the midst of global financial meltdown in 2009, with manufacturers topping up levels as demand began to pick up again.   But with the semi industry on unsteady grounds in terms of growth recently – for example the SIA announced a drop in sales  – brows are furrowed once again.

The situation is precarious. There are concerns that too much inventory, as is the case with DRAM, leading to lower pricing, while too little stockpiled in the rest of the industry raises worries over a lack of market confidence overall.