Guidance and Visibility

[madrose1]

DDR2 shortage to ease from late Mar, price fall of NAND mitigates


TAIPEI, Taiwan - Mar. 7, 2006 - The market of both DRAM and NAND trend more stabilize last week, posting good signals for buyers and NAND Flash makers but mist over DRAM suppliers. The observed crossover of DDR2 contract and spot prices prompts us to foresee the ease of present DDR2 shortage to emerge from late Mar, coupled with the anticipated supply growth. NAND Flash, which had been suffered a dramatic price fall recently, finally shows stabilizing trend. DRAMeXchange regards the upcoming CeBIT (Mar 9-15) as an key indicator for both DRAM and NAND Flash price trends.

Crossover of DDR2 spot &contract prices highlight ease of DDR2 shortage

DXI descended to 3,007 points from 3,013, reflects the slight DDR2 spot prices drop last week. Despite the weak PC clone market demand had led to a 8% price drop for DDR 256Mb 32Mbx8 400 MHz and 1.2% drop for DDR2 512Mb 64Mbx8 533MHz since February, prices of the listed chips rebounded last week. DDR 256Mb 32Mbx8 400 MHz trended to US$1.8 after bottomed out at US$1.77 and DDR2 256Mb 32Mbx8 533MHz was stabilized at US$2.1. Demand for DDR2 chips at the spot market remains weak and Elpida has started clearing stocks with price of DDR2 512Mb 64Mbx8 533MHz dragged by a slight US$0.06 to US$5.09.

Spot prices of DDR2 had once maintained with a slight difference with contract prices during Dec05 but rumors suggested that the shortage in early Jan06 had prompted system makers to procure considerable amount of DDR2 chips from spot market and led DDR2 spot prices enjoyed a relatively high price premium over contract prices (Chart 1). This crossover maintained through late Feb and spot prices of DDR2 finally showed softening signs. Contract prices, on the other hand, trended up in 1HMar and resulted in a reverse spot/contract market crossover. DRAMeXchange estimates that the upward trend of DDR2 contract prices will counter a respite in 2HMar with chips either traded flat or report slight price drop.

The weakening DDR2 spot prices highlight that demand from system makers at the spot market no longer persist and interpret that the previous shortage should result in equilibrium from late Mar. We expect DDR2 output should start ramping up from late Mar as chipmakers have shifted more capacity on DDR2 production from early Jan. Demand, at the meantime, should trend down as the traditional low season approach. The record-high DDR2 shortage of 50-60% that observed in Feb should no longer exist.

Contract price trends of "High" and "Low" chips trended reverse in 1HMar

Tracking the contract price records for 1HMar, price trend for "High" and "Low" level chips trended divergently in the previous two updates. "High" level chips reported a sequential growth of 2% only in 1HMar, versus 2HFeb's over 10% jump. "Low" level chips, however, rebounded by an over 10%, versus 2HFeb's 2-3% growth. We conclude the factors as (1) Some vendors had fixed contract prices for 2HFeb for some customers . This price settlement in turns limited the price up rate for "Low" level chips in 2H Feb.. Noted the rate of price up among different system makers fluctuate amid the difference of bargaining power. (2) DRAM insisted to raise prices for "Low" level of DDR2 256MB modules to $ 22 in 1HMar and the average price of DDR2 256MB DIMM being boosted up by US$1 to US$23. For those customers whom accepted the over 10% price adjustment in 2HFeb, the narrow-down price up of 2-3% had adjusted the price difference nearer. Contract prices for DDR were able to maintain at its plateau as some customers were open for slight price up to trade for sufficient DDR2 supply.

NAND Flash spot price stabilized within 4% fluctuation rate

After reporting a maximum of 18% MoM dramatic price fall, the NAND Flash downward pricing trend has finally come to a stop in the week Mar1-6 with the maximum drop rate only recorded at 4% for 4Gb parts. Demand, though not in a large amount, was being encouraged by the price reductions and stimulated demand from memory card makers. We observe that China market mainly focuses on 1Gb and 2Gb while Korean market focusing on 4Gb and 16Gb. Apart from demand of NAND devices makers, we also see speculators started collecting 1Gb and 2Gb parts, thus sustaining these parts' current price levels at certain levels. However, overall demand is not strong enough to swing the price trend up side down and industry players are still observing the order landed status after CeBIT.

Supplies of high-density NAND Flash chips still occupy the majority at the spot market these days. But agents and customers still have bountiful inventories on hand. As prices for 2Gb, 4Gb, and 8Gb NAND Flash chips had dropped belowUS$9, US$15 and US$30, we believe contract prices for these chips should counter with the stiffest price drop pressure in March as makers still expect to push sales.



.







Market watch: Lenovo debuts 3000 series to complete product coverage

After the stunning consolidation with IBM's PC unit last year, Lenovo debuted its "Lenovo 3000" for the global market during late February and target to meet the needs of small business and individuals. Lenovo 3000 will be first introduced at London , Paris , Singapore and Sydney and deliver to 45 countries soon after the initial launch.

Lenovo sets its Lenovo 3000 for the mentioned customer groups in attempt to distinguish the small business market with the original PC group that inherited from IBM. The arrival of Lenovo 3000 also helps to complete the product range to the high-end market group that established by IBM previously.

This series of PC is currently the entry-level models with desktop version priced at US$350 and notebook version priced at US$599. The price ranges of Lenovo 3000 are similar to fellow players including Acer, Dell and HP in US with sales only available on Lenovo/IBM's website but not distribution channels.

As Dell already established a solid foothold at the PC direct sales channel in US, Lenovo could hardly compete head-to-head with Dell. Competition at distribution channels, on the other hand, are grabbed by leading players such as Acer and HP. DRAMeXchange is conservative about any rapid market share growth of Lenovo PC in near term but remains open for its long term development. If Lenovo could fulfill demand of small business groups and individuals with complete after-sale service and strengthened tie with distributors, Lenovo should able to polish its brand name among others. Sparking any price competition is definitely not a wise move for Lenovo, especially when its PC shipment level has not yet reached economical level.

Market watch: Tsinghua Tongfang wins Anhui government bidding orders again

The deployment of five-year long "Billion Project" by the Chinese government posts a positive outlook for China-based PC makers with leading local player, Tshinghua Tongfang, reports encouraging news recently.

Tshinghua Tongfang, which is profound for its PC at the education institution in China for a long history, had recently landed the bidding cases from the Anhui province government. The total ordering amount totaled at an approximate of 2,300 desktop PCs and another 600 servers. The amount landed by Tshinghua Tongfang ranked at second place after the number one bidder.

Tshinghua Tongfang has been devoting years of efforts on supplying PCs for education institutions and its established foothold enables the company to gain the bidding orders for the third time. In addition to the Anhui province government orders, it had also landed a total of 150,0000 PCs ordering amount from various regions including Hebei, Hunan, Guizhou, Sichuan, Shanxi and Xinjiang.