Consumer Electronics

Stabilizing DRAM Prices, Looking Beyond Chip-Maker Warnings (MU, FSL, WFR, ISSI, SNDK, CODE, TXN, SMH, XSD, USD, SOXL)

DRAM price trends were not exactly going that great for chip makers this summer.  It was brutal.  Now we are seeing some production cuts, so even if demand is slack this is offering some price stability for DRAM manufacturers and even for other aspects of the semiconductor group.  New data from DRAMeXchange is showing that the first half of September saw 2GB contract prices flat as production cuts are bringing relief.  If this holds, it ends a 5-month downtrend.

The report shows that the DDR3 2GB contract price stayed flat at an average $10.75, but the DDR3 4GB ASP did fall slightly by about 4.6% to $20.50 because DRAM makers were increasing shipment volumes. Also noted, “From the market perspective, benefiting from production cuts by Japanese and a number of Taiwanese manufacturers, the spot market continually saw price rebounds. While the increases only lasted a few short days at a time, the effects of supply-side production cuts were enough to present the depressed spot market with a chance to recover slightly.”

This showed that the difference between contract and spot unit price for DDR3 2Gb chips has shrunk to 12%.  And the DRAM maker hopes… “finally putting an end to the dismal DRAM price trend of the past few months.”

Here is how brutal the trend was… Since June, the DDR3 2GB contract price fell over 40% to a low of $10.50.  Sadly, this breaks the cash cost for the majority of DRAM makers.  On this front it was noted, “PC OEMs’ September inventory restocking has been much better than in the previous few months, causing 2GB contract price to stay flat. Although the market currently remains in a state of oversupply, production cuts across the board have improved the DRAM oversupply situation and eased the price decline.”  As a result, some DRAM manufacturers have started quoting higher spot prices.

Micron Technology Inc. (NYSE: MU), Americas home-grown DRAM giant, is up 3.3% at $7.09 and its 52-week range is $5.18 to $11.95.  Freescale Semiconductor Inc. (NYSE: FSL) has been a dismal memory IPO but even its shares are up 1.8% at $12.45 and the post-IPO range is $9.43 to $20.97.

MEMC Electronic Materials, Inc. (NYSE: WFR) makes silicon materials for chips (and for solar) and its shares are trading flat at $6.80 versus a 52-week range of $4.96 to $15.04.  Unfortunately, MEMC seems to be lost.

DRAM is certainly not flash memory… Still, we cannot ignore that what may be good news for the DRAM players could ultimately end up being some of the same for flash makers.  A smaller independent DRAM and SRAM maker Integrated Silicon Solution, Inc. (NASDAQ: ISSI).  Its shares are up 1.6% at $8.56 and the 52-week trading range is $7.01 to $11.79.  SanDisk Corp. (NASDAQ: SNDK) is up 3% at $42.19 and its 52-week range is $32.24 to $53.61. There is also Spansion Inc. (NASDAQ: CODE) in NOR Flash and it is only up 0.5% at $14.08 with a 52-week range of $12.82 to $21.60.

Texas Instruments Inc. (NYSE: TXN) is also on many aspects of memory and components under the semiconductor sector.  Despite a cautious outlook given recently, TI’s stock is up 0.7% at $26.84 and the 52-week trading range is $24.11 to $36.71.

The Semiconductor HOLDRs (NYSE: SMH) ETF is up 0.7% at $29.80 today and the 52-week range is $25.87 to $36.99.  SPDR S&P Semiconductor (NYSE: XSD) is less liquid as an ETF, but it has a better representation of component weightings.  Its shares are up 0.8% at $47.08 against a 52-week range of $41.71 to $64.06.

When we covered our Technology Value Series in August, we warned about the potential warnings or lowering of estimates.  That has also come about.  We also noted that the calendar may work against the sector into September, but then the calendar is generally believed to be favorable for the sector on a historic basis.  We are now almost in the second-half of September.

We strongly suggest for traders and investors to understand all of the nuances and details of these leveraged ETFs, but there are two to consider if you truly believe that DRAM makers are going to have a marked improvement.  The 200% mover is the ProShares Ultra Semiconductors (NYSE: USD) exchange traded product and the 300% mover is the Direxion Daily Semicondctor Bull 3X Shares (NYSE: SOXL).  You are on your own on those.

Unfortunately, some of the market strength seen his morning is coming out and these winners are now not up as much as they were in the first 30 minutes of trading.

JON C. OGG

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