Forget About Memory Stocks For Now

Market research firm iSuppli Tuesday downgraded its rating on near-term conditions for suppliers of NAND and DRAM memory chips to “negative.” They had been neutral on the NAND market since March, and the DRAM market since July.

The basic issue: pricing.

According to iSuppli, the global average selling price for 512 Mbit NAND will drop 24% in the fourth quarter, to 46 cents from 60 cents. The price of the same part had increased 8.4% in the third quarter and 6% in the second quarter. Nam Hyung Kim, chief market analyst for memory ICs and storage systems at iSuppli, said in a statement that NAND pricing is being pressured by over-supply as Korean DRAM makers shift capacity to NAND.

Meanwhile, iSuppli says that conditions in the DRAM market “couldn’t get much worse.” He says prices have been falling since September and have dropped below the cash costs of production. He says pricing on 512 Mbit DDR2 DRAM “has been collapsing,” with spot market pricing below $1 this week. “This likely will result in most DRAM suppliers posting losses in the fourth quarter,” Kim writes.

Kim expects DRAM makers to return to operating profits in the 2008 second quarter, with NAND pricing recovering in the third quarter. “However, this scenario assumes suppliers’ behavior will be rational, and they will not engage in any massive production increases that could send DRAM pricing into a dive,” Kim adds. “Any irrationality could drag out the market recovery.”

Among the memory stocks, Micron (MU) Tuesday is up 6 cents at $9.38; Qimonda (QI) is up 16 cents at $8.79, and SanDisk (SNDK) is up 90 cents at $38.50.

Comments

[nwriko]

I'm not so sure that staying away from memory stocks would be good advise. How does one explain that since iSuppli's announcement, SMOD has moved up by 9% on that very same day (when the rest of the market was collapsing) and by 10% today...? Moreover SNDK which dropped 3% tuesday gained over 4% today?

[jcrash]

Well, Sandisk is being manipulated, atm, by hedgies and funds. They moved out when it was in the high 50s and are now positioning to get back in. If you ask how I know,well, you can lookup who had big positions in May and they currently are not in.

I don't think a 24% drop in Nand is a big deal if they had 15% increase over previous two quarters. Plus, Nand's day is coming. The New macbook (see macrumors.com) has no hard drive, it uses Flash. Other manufacturers will follow suit. Within 2 yrs, MOST laptops will not have a hard drive.

As for DRAM, well those guys are screwed. PC's haven't needed more than 2GB of RAM and that really isn't changing. So, whereas they used to make more money by selling larger chips, now they are stuck just hoping for faster chips and that hasn't changed much either. So, customers have no need to updgrade. This is why Apple's margins are doing so well, they don't reduce the price on their macs when memory goes down.

Anyway, Sandisk is a BUY at anything under $40. It may regress to $34 or so, so step into it, but it is something you want to hold over the next couple years.

[User 122928]

Who cares about 512Mbit chips? The average Flash card, MP3 player (or IPhone) uses somewhere around 2GB of Flash (2GBytes=16Gbits). To use more than one chip in a product when a one chip solution is available usually cost more (extra packaging, higher failure rate, etc.). I believe 64MB cards were discontinued years ago. This information on 512Mbit chips is not too meaningful.
What data do you have on the DRAM to Flash conversion? Or is it just a rummor? Vista is still rolling out and although it has lagged considereably more than expected in that rollout, I believe that DRAM manufactures are still expected an uptick in demand. They don't want to convert their fabs only to have to convert back.
The point is - how will the average selling price of 1-64Gbit Flash be affected by the extra capacity coming on line in the next few months? If demand is not increasing, why did Samsung increase CAP Ex for this year by $1B. A 15% drop in ASPs is normal, sustainable and profitable for memory companies based on technology improvements for cost production and the increase in sales that it stimulates.
So far, I have not seen the big drop in ASPs for memory or cards this quarter. There was a small drop in the beginning of the quarter.