The trouble in the DRAM sector continues. In a research note Friday morning, Merrill Lynch’s Simon Dong-je Woo , an analyst based in Seoul, asserts that some chip companies have been signing contract prices for 512 Mb, 667 Mhz parts at $2, below both the recent spot market price of $2.60 and below the cash cost for Tier 2 players.
Woo writes that he has also heard that some PC makers are asking May contract prices below $2, versus $6 early this year. He sees the price falling below the $2 level next month, not only below the cash cost for the smaller players, but below the fully loaded cost for bigger producers.
Woo thinks there could be 10% downside risk in his current second quarter DRAM price estimates. “Already, April DRAM prices are below our expectations, and May’s contract prices are likely to be lower than April’s," he writes. “This turn of events suggests downside risks to our current estimates for DRAM makers’ 2Q profits. ”
That said, Woo thinks pricing will improve after bottoming in the second quarter, for several reasons. One, he sees NAND running into supply constraints, which makes it less likely capacity will shift to DRAMs. Two, he thinks some unprofitable 200 mm DRAM fabs will be shut down. Third, he cites “price elasticity,” meaning the big drop in prices should stimulate demand. And four, he sees “healthy” 11% PC growth this year.
MU vs. QI 1-yr chart