DRAM market on its way to recovery: Gartner

According to Gartner Inc., after more than two years of recession and huge losses, the DRAM market is on the verge of recovery. The firm forecasts worldwide DRAM revenue to reach $5.1 billion in Q3 of 2003 - a 37.8 percent increase over Q3 of 2002. It was projected that DRAM revenue will reach $18.9 billion in 2003 - a 21.8 percent increase from 2002.
Gartner analysts said the DRAM industry needs to be aware of the tentative nature of the upturn. "This recovery is going to be based on lack of supply, not increasing demand," said Andrew Norwood, principal analyst for Gartner's semiconductor research group. "We have been here before, and if the DRAM vendors become greedy and increase production, the industry will quickly swing back into oversupply and prices will crash."

Prices in the spot and contract markets began to stabilize in the second quarter of 2003, and have continued to improve, the market research company says. Average selling prices (ASPs) are forecast to increase 20.5 percent in Q3 of 2003, reaching $5.55, on a 256Mb equivalent basis. Some major DRAM vendors are also reducing anticipated DRAM production in favor of other devices such as NAND flash, which has improved the outlook for the supply and demand situation.

Although this is optimistic news, Gartner analysts said that DRAM remains the most volatile area of the semiconductor industry. "The expected balance between supply and demand could easily swing into oversupply if PC demand is not as strong as expected," said Norwood. "Likewise, if DRAM manufacturers increase production ahead of plan, owing to improving market conditions, the market could be pushed to oversupply earlier than predicted. Any move into oversupply and the related build-up in inventory levels would have a knock-on effect on pricing. If ASPs deteriorated seriously, revenue and profits would quickly evaporate."