Earlier this week, we noted Morningstar research on how to bet on winners during a coming flash memory shortage. But the shortages and rising prices are expanding beyond flash memory now. New data from DRAMexchange is pointing that Flash Memory may soon be joined by DRAM in shortages or at least in supply concerns. The Flash shortage is a win for SanDisk Corporation (NASDAQ: SNDK) and Micron Technology Inc. (NASDAQ: MU) directly, and an indirect win for Applied Materials Inc. (NASDAQ: AMAT) and KLA-Tencor Corporation (NASDAQ: KLAC). SanDisk won’t be affected by any DRAM shortages, but almost the entire chip sector will. Those four companies make up close to 20% of the weighting of the Semiconductor HOLDRs (NYSE: SMH), but the DRAM and cap-ex stocks in the equation for DRAM come to closer to 50% of the weighting if you expand out the shortages to DRAM.
DRAMeXchange noted that the aggressive demand from PC-OEMs shows that the 1H’Apr. contract price still remains strong upward momentum that DDR3 is up 7% to US$46 while DDR2 is up 5% to US$42.
It also noted that from the market status, DRAM demand in 1Q10 and expected 2Q10 will sustain the high level same as the peak in Q4-2009. It also noted that DRAM vendors still work on technology migration which resulted in the limited supply and that the strong demand for mobile DRAM will also cannibalize the output from commodity DRAM.
The firm quoted, “Currently we heard the view that DRAM vendors will likely adjust up contract price 5%-10% before 3Q10 if aggregate demand surpasses the aggregate supply.”
That 5% or 10% might not seem huge. But you have to recall the history of DRAM. This ss a quoted commodity just like a commodity that was quoted on earth-based commodity markets. The difference is that DRAM spent years and years only going down and down in price. Now the issue boils down to whether you should chase the chip stocks that have already made significant recoveries.
JON C. OGG
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