DRAM Prices Rise, Partly on Anti-Smuggling Fight in China (MU, TSM, STX, WDC)

Stock Tickers: MU, TSM, STX, WDC

DRAM chip prices have almost always had a trend…Lower prices.  That isn’t always the case but over the long-term that has been the case.  Earlier this month we noted some calls for higher DRAM chip prices later in the year, and it looks like ‘later’ was sooner rather than later.   Interestingly enough, a report out of DRAMeXchange is saying that smuggle-fighting in southern China has forced some channel distributors in Shenzen to pre-stock inventories and that has driven up prices.  Apparently China is willing to fight smuggling if it is coming into their country because it gets to impose a 17% VAT on imported goods.  It appears the recent crackdown efforts have forced distributors to buy legitimately on the spot market because of increased penalties.

DRAMeXchange has also said that a prolonged production cycle when transitioning to 70 nanameter production has also boosted chip prices.  Taiwan saw chip production cuts in Taiwan that lowered supply, although that is expected to smoothen in July and August.

Here is a quote for ahead: Projecting DRAM contract price in 2HJun, DRAMeXchange sees room for growth along with obvious demand pick-up. Contract price for DDR2 667MHz 512MB should stay in the range of US$15-16, similar to that of 1HJun’s. In light of the upcoming PC seasonality in 2H07, some PC OEMs who ink long-term contracts with chipmakers, also helped holding prices firm. If the DRAM spot prices sustain its upward trend throughout June, we anticipate that DRAM contract price to see persistent upward trend in July as well.

Hard disk drive makers are indeed getting some competition from solid-state drives.  Higher-end notebook PC’s are hinting that SSD is indeed coming into production because of power saving efficiency, strong shock resistance and faster boot-up time.  It’s too soon to write of HDD makers like Seagate (STX-NYSE) and Western Digital (WDC-NYSE) because these high-end SSD notebooks can easily be more than double the cost of standard HDD notebooks.  Some outside reports I have seen do not out SSD will make a large dent until 2009 and beyond.

Share of US-chip leader Micron Tech (MU-NYSE) are up more than 3% today and the even larger chip player Taiwan Semiconductor (TSM-NYSE) is seeing shares up 1% on the day.

Jon C. Ogg
June 20, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.