It’s Official: DRAM, The World’s Worst Commodity Business (MU)

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The reports out of DRAMexchange are showing some good trends and some bad trends.  The good trend is that every day DRAM and computing power is getting cheaper and cheaper for you and me.  The bad news is that the business side for producers continues to get worse and worse.  As you will see, being a DRAM manufacturer may be the world’s worst business to be in.

DRAMexchange said this morning that DR2 1Gb chip spot prices have hit anew historical low, and the DDR2 1GB contract price fell below theUS$10.00 level.  The near-funny thing is that this talks about theTaiwanese government possibly funding the DRAM companies.  The USgovernment has a TARP for financial firms and those with significantfinancing needs in trouble, so maybe Taiwan can bring on a "DRAM TURD"bailout program.  Remember what we have said about low-cost computing and what it is doing to tech companies tied to PC’s?

You can see a table, but the DDR2 1Gb eTT chip price dropped33.6% from just in the the beginning of the fourth quarter, and theDDR2 667Mhz 1Gb chip price fell 36.8% from the beginning of the fourthquarter.  DRAMexchange said that it obviously showed that the DRAMvendors are dealing with sever inventory pressure and the oversupplysituation still remains.
The 2H November contract price fell below US$10.00 and hit a historicallow with the average price of DDR2 667Mhz 1GB and 2GB modules dropping 30% and 26% respectively since the start of the fourth quarter.

Here is where this gets interesting.  It talks about a slow season fromNovember conventionally for PC’s and the total market demand declinedsharply.  It also noted that the contract price may keep plunging (butwith limited range) and the increasing of DRAM average content per box(PC) will be suppressed. The worsening environment and the Netbookissue mentioned above will delay the recovering of contract price.

Micron Technology Inc. (NYSE: MU) is now a $2.10 stock, down from over $15.00 in the last two years.

We have maintained that DRAM is merely a commoditybusiness.  The difference between this commodity and gold or corn isthat DRAM seems to never rise in price.  In fact, you’d wonder if theDRAM manufacturers will start paying you to walk away with more DRAM.

Jon C. Ogg
November 25, 2008