View from Silicon Valley- NAND Flash : Spot price plunged
(c) Copyright View from Silicon Valley, 2005. All
rights reserved.
As reported last week, the current semiconductor business
"recovery," and the strength in the SOX are predicated on continued, and growing, demand for consumer devices on
top of a second-half recovery in corporate demand. If you think about this for a moment, you realize it won't be enough
to blow out the numbers on high-end cell phones, MP3 players, digital still cameras and video games. The semi companies
are also depending on growth in PCs, servers, VoIP, WiFi/WiMax, xDSL, SAN/NAS storage, etc. If any piece of this
puzzle "misses," profitability is at risk...
A couple more data points for the "puzzle" arrived today:
1) April, 2005 SIA results were lower than January, 2005(*). (January is perennially the weakest month while April typically marks the beginning
of "seasonal" strength.) Yes, that's right, for all the trumpeting of "strong" semiconductor sales in the press and
the recent rise in the SOX, April, 2005 sales were below January.
Not to worry, says SIA, "Excess inventories
have been eliminated and capacity utilization remains at reasonable levels." Oh, really? How much inventory is
Intel still holding? Who had inventory before but no longer has it today? What's that? You don't know?
Then how do you know excess inventory was eliminated???
Similarly, if "reasonable" was the strongest adjective
they could think of to describe fab utilization, this proves our point. TSMC's utilization in the 70%-range,
with UMC closer to 60%, would hardly be considered "strong." We would submit "reasonable" is far
short of "strong."
In addition, April's year-over-year growth rate fell to
6.9%, down from double digits in January. There's nothing wrong with +6.9% but the trend is actually getting weaker
at the same time the pundits are claiming it's getting stronger...
2) DRAMeXchange previously reported weakness in DRAMs and the dependency of semiconductor earnings on continued 100%+ y-o-y NAND bit growth to
offset continuous price declines. Two weeks ago they observed NAND brokers in Asia(#) were clearing out inventory.
(Who knew brokers had NAND inventory given that parts are supposed to be hard to get?)
This week, DRAMeXchange confirms our point from last week:
"NAND Flash : Spot price plunged 6-13% for high
density chips!
Spot prices have shown a significant drop since last week. This week, most of the high-density
spot price lows dropped below contract price lows. On some days, the daily price
drop approached nearly USD$2.
8Gb and 2Gb spot price lows are below contract price lows by 6-10%
1Gb to 8Gb chips' spot prices all dropped at least 6% this week. Yesterdays' closing average spot
price is at USD$49.8/USD$27.9/USD$13.45/USD$8.08 for 8Gb/4Gb/2Gb/1Gb, respectively. 8Gb and 2Gb chips' spot price lows are
already below contract price lows in the range of 6-10% price gap. However 1Gb and 4Gb chips' spot price still have some premium
over contract prices.
Whenever the spot price spends more than a brief moment below the
contract price, the major customers demand - and receive- price cuts at their next vendor meetings. Some of these
prices are re-negotiated monthly, which means users can start getting 6 -10% lower prices beginning --tomorrow!
...
Also this week, DRAMeXchange reports 32Mx8 DDR400 prices "recovered"
to $2.39 (still down from $4.00 in February, 2005) In literally the next sentence after the word "recovery," DRAMeXchange
said continued weakness in DRAMs is encouraging more vendors to move still more(!) capacity over to NAND.
Similar to the comments two weeks ago about NAND brokers selling off inventory, let's check on the DRAM brokers. They risk their own money
to buy and sell parts. According to DRAMeXchange, DRAM brokers are choosing not to add DRAM inventory
right now. Why not, if the price is about to recover?
As touted by Mark Cuban before he will invest, this is unique
knowledge and the DRAM brokers had it a couple weeks ago They know a further "recovery" in DRAM prices is far from a
certainty. (Don't forget, this "recovery" was hoped to reach $3.00, down from $4,00 in 2004 and through mid-February,
2005.)
Conclusion: NAND may be joining DRAM on the weak pricing bandwagon.
The SIA mentioned cell phones sales were weak. Can CPUs and logic grow enough to offset flat-to-declining memory sales?
What is going to drive actual y-o-y improvements for the alleged 2H05 semiconductor recovery?
* * * *
The above is strictly for entertainment purposes and should be construed as advise
to buy, hold or sell any security of financial product. Always consult a licensed investment professional before making
any investment decision.
