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  Date: 29/06/2012

DRAM pricing is strangely stable due to Elpida bankruptcy: IHS

IHS iSuppli has released the DRAM Market Brief and according to it, the pricing has become markedly less volatile since the February bankruptcy of major supplier Elpida Memory Inc., deviating from long-term trends in statistically important ways,

The other findings reported by IHS iSuppli include:
DRAM pricing appears to have flattened since the announcement by Elpida that it owed billions of dollars in debt, even though the Japanese maker had been the third-largest DRAM supplier in terms of sales even as late as the first quarter this year.

In the 12 week period after Elpida’s February 27 announcement, the IHS iSuppli DRAM Price Index—a weighted average of DRAM spot price—continued within a narrow band, hovering between 235 at the start of the post-announcement period and 243 on May 21. With a starting value of 1,000 at the time it was first published in 2002, the Index gives a measure of how much DRAM prices are dropping.

In comparison to the time above, the spread in the DRAM Index was much larger in a similar 12-week duration prior to bankruptcy, ranging from 180 at the beginning of the pre-announcement phase up to 216 at the close of the same period, or a difference of 37 points.

Another measure of DRAM pricing changes, the IHS iSuppli Momentum Indicator, has also continued at the 50 percent level since the announcement, an sign of neutrality with no upward or downward momentum.

The table below shows both the DRAM price index and Momentum Indicator taken in various times between and after the Elpida event—on December 5, at the beginning of the 12-week period before the announcement; on February 20, one week before the actual bankruptcy notice; on March 5, at the beginning of the period after the announcement; and on May 21, the end of the 12-week period after the bankruptcy filing.

12/5/2011 2/20/2012 3/5/2012 5/21/2012
DRAM Price Index 180 216 235 243
Momentum Indicator 50 50 51 50
Source: IHS iSuppli Research, June 2012

“With things still very much up in the air on how events will unfold, industry participants seem to be waiting for some indication of what the resulting industry structure will be like after an Elpida takeover is finalized,” said Dee Nguyen, memory analyst at IHS. “As a result, the current pricing environment appears to reflect this mood with the DRAM market eerily quiet, accompanied by visibly less pricing volatility atypical of the industry. Clearly then, a direct correlation exists between decreased DRAM pricing volatility and Elpida’s announcement given that the current period of flat DRAM pricing occurred right after the bankruptcy notice. The big question also remains whether normal volatility will return once some clarity emerges on the future of Elpida”

In yet another hint that the DRAM market is behaving in unexpectedly quiet fashion, the same trend of reduced pricing volatility is true for 2-gigabyte Double Data Rate 3 (DDR3)—currently the mainstream, highest-volume DRAM chip on the market. Just one week before the Elpida notice, pricing for 2-gigabyte DDR 3 fluctuated by a steep 17 percent from the earlier week. In comparison, weekly pricing on the 12th week after the Elpida bankruptcy showed that 2-gigabyte DDR3 changed by a negligible 0.7 percent.

What is happening is that a storm of speculation has risen on the question of who will ultimately take ownership of Elpida, and what implications there will be for the DRAM industry when that happens.

While U.S. memory maker Micron Technology Inc. has won the exclusive right to bid for Elpida, the deal still holds considerable interest for other parties such as SK Hynix Semiconductor of South Korea and California-based GlobalFoundries Inc.
Author: Srinivasa Reddy N
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