A DRAM market already weakened by low demand is further suffering from a dramatic rise in inventory this past quarter, according to research firm IHS iSuppli.
The inventory surge "threatens to further sink the industry," iSuppli stated.
"The surge in inventory exacerbates the travails of the steadily deteriorating DRAM market," Clifford Leimbach, analyst for memory demand forecasting at IHS, said in a statement. "DRAM suppliers are suffering from a multitude of market-depressing factors including the lack of worldwide demand, the arrival of new applications needing less DRAM, and operating systems that do not require an incremental increase in DRAM as previous versions did."
IHS iSuppli uses what it calls a "Global DRAM Inventory Index," which records the number of weeks of inventory the market has. In the third quarter of 2011, that inventory stood at 12.8 weeks, which represents a 31 percent increase from 9.8 weeks in the second quarter, and more than double the 6.1 weeks seen during the first quarter of 2010, which marked a recent low point for DRAM inventory. It also is significantly higher than the long-term quarterly average of 9.2 weeks.
IHS estimates that DRAM revenue slid to slightly more than £3.87 billion ($6 billion) in the fourth quarter of 2011, down 11 percent from the third quarter.
Global DRAM Inventory Index
The rise in the Inventory Index means that there is more inventory being held by DRAM producers, putting downward pressure on chip prices.
Leimbach pointed out that DRAM sales are declining due to an increase in the sales of tablets, which use far lower density DRAM chips. Less DRAM is also being purchased as a result of slowing sales growth for traditional notebook PCs.
"The financial difficulties of a number of DRAM players also have prevented capital expenditure investments on their part in more cost-effective processes, which could have improved the profitability of the companies. This is because newer DRAM chips manufactured using the most advanced process node technology yield higher profit margins, compared to lower margins seen from previous-generation chips that are newly produced or that have been sitting in inventory," iSuppli said.
With DRAM manufacturers already suffering from razor-thin profits or even losses, the disparity between old and new DRAM chips becomes even more pronounced, the firm said.
This latest DRAM market slowdown is similar to one that occurred in 2008, when oversupply coincided with a recession, but this latest downturn is different in many ways, iSuppli noted.
Economy could help DRAM market
"For instance, the last upheaval occurred over a drawn-out period lasting nine quarters, while the level today from trough to current high has taken only six quarters. Also, the present peak is already higher than all of the data points in the previous cycle save for one - the previous apex, reached in the first quarter of 2009 - and there is every possibility that this cycle could surpass the last," iSuppli stated in its report.
Given the shakiness of the world economy, the DRAM index could continue to rise for a few more quarters, worsening an already bad situation within the space, iSuppli stated.
Leimbach said, however, that there is a "glimmer of hope."
"Should expectations arise that the economy might be headed for improvement - the belief alone is sufficient - things could rapidly improve," Leimbach said. "An example of heightened expectations very quickly reversing the downward path of the DRAM market occurred in 2009, when the Inventory Index recovered from a beleaguered 14 weeks to a desirable six weeks in the space of just three quarters."