If technology markets were animals, DRam memory would be a rabid, starving Rottweiler with a thorn in its foot.
It is so volatile that tracking it on a daily basis is the only way of guessing what will happen tomorrow. What will happen in two days' time is anyone's guess.
The recent news that foundry manufacturer ProMOS was to enter the DRam arena led a rival director to say: "Why anyone wants a share of this unprofitable and unstable market is beyond me."
DRam memory, used in the vast majority of the world's PC-based systems, is big business. It used to be really big business until the sector was effectively crushed by the recession.
According to market watcher iSuppli, the DRam market was worth $30bn in 2000 but fell to just $11bn by 2001.
It was predicted to recover to $25bn in 2003, because companies need to replace the PC systems they installed to cope with the millennium changeover.
However, they have been slower in refreshing systems than was expected, preferring to upgrade components and extend the life of existing systems. The global PC refresh will happen but no one is holding their breath.
So while DRam memory revenues are expected to rise, the market is still dependent on the PC market getting back up to speed. Late 2003 or 2004 is the earliest that this kind of steady upswing is expected to occur.
The IT disaster that was 2001 only accelerated events in an already fiercely competitive and troubled arena.
In the past four years minor and major players have gone to the wall, allied themselves to other panicking DRam suppliers, or retreated from the market to avoid being dragged under.
Since the early 1990s, the DRam market has changed through attrition and consolidation. Big players back in 1990, such as Siemens, Motorola, Texas Instruments, Oki and LG Semicon, are no longer on the DRam radar.
Others from the mid-1990s, like NEC and Hitachi, went down the consolidation route, creating Elpida, the only Japanese DRam manufacturer left.
According to iSuppli, the top three players in 1995, Samsung, NEC and Hitachi, controlled 37 per cent of the market, but in 2002 the top three, Samsung, Micron and Infineon, controlled 64 per cent.
But consolidation has not brought the stability that usually accompanies a shake-out; there is just too much product out there. The big DRam companies are still making too much for existing demand.
Even with production reined in there is oversupply, particularly in the generic second- and third-level DRam sectors, where price battles rage.
If the first six months of 2003 are anything to go by, consolidation has failed and the market is as chaotic as ever.
In January DRam prices continued the drop begun in the last quarter of 2002 and reached new lows in the contract and spot markets.
From a peak in November, the cost of double data rate (DDR) memory fell by half in just three months.
"Prices have really been tumbling," says Vincent Hunter, director at ValueRAM Europe, the division of Kingston Technology dedicated to the system builder market.
"They have picked up a bit again over the past couple of months but the market is still very unsteady."
Stefanie Summerfield, Crucial Europe's general manager, agrees. "Pricing is stable at the moment but what it will be like tomorrow is anyone's guess. It's all down to supply and demand," she says.
Chris Austwick, managing director of VTEC, observes: "Prices have been dropping all year but have steadied a bit in the past month. That said, there has been no real demand behind the price hike."
Joe D'Elia, research director at iSuppli, claims DRam sales are driven by demand, which is in turn governed by two factors: units of PCs sold and 'fit' (the amount of memory fitted in those systems).
"On the unit side, growth rates are in the low- to middle-digit ranges, and the fit side has grown. But there hasn't been a huge driver to take the market from over-supply to an under-supply situation," D'Elia explains.
The main problem has been a slump in new PC sales over the past couple of years in the consumer and corporate sectors.
Last year's expected Christmas rush did not happen. There is also the 'crystal ball' factor, where DRam manufacturers hope the amount of memory they produce matches demand by the time it rolls off the production line.
There has been too much produced and it has been making its way onto the market as branded and unbranded product, keeping prices down for much of this year.
"PC sales are a big driver in the DRam market, but the market growth has been poor. The best growth has been in Europe but growth in the US and Far East is just not there," says Hunter.
"What's been happening recently is that the DRam manufacturers are getting a better delivery mix between SDRam and DDR memory types and yields are improving."
Summerfield states: "The market conditions have been down to a number of different factors, not just PCs.
"You have to look at the manufacturers and how much they are investing on the manufacturing side as well as the processes they are using, and how effective they are."
There is still an awful lot of product out there, Hunter claims. "DRam suppliers have been more successful controlling their contract prices with their tier-one customers, but they have also been releasing a lot of product into the open market and second-level brands," he says.
Things seem to be looking up. Prices have steadied in recent months and are actually on the way up.
Some believe it is not demand that is fuelling increasing prices but speculative buying of DRam as the back-to-school PC season looms.
Buying now insulates DRam brokers and smaller PC builders from a shortage when sales pick up.
iSuppli claims speculative buying is the key to the current price increases as DRam makers migrate from the current big seller, DDR266, to faster DDR333 and DRR400 memory.
"DRam prices are on the up. Suppliers are stockpiling and hope to make some money when supply dries up," says Austwick. "But it's a dangerous game."
Hunter claims: "We are not seeing too much speculative buying at the moment - not in Europe, anyway, and not compared with the speculative buying that went on last year. There's only so much inventory that people want to build up.
"The supply right now is about right, and if the DRam firms can stick to this kind of output into Q3 and Q4 they will be doing themselves a favour. It should also stabilise the market."
ISIC-LOR, another DRam market tracker, believes the back-to-school cycle is playing a role. It claims the price increases are down to earlier-than-normal DRam shopping, not insufficient product availability.
It also warns that demand for DRam might disappear after this cycle has passed, as quickly as it appeared.
Recent announcements by key PC firms have offered hope. Hewlett Packard revised its shipments for PCs upwards for 2003, and Japanese firms such as Sony and Fujitsu have followed suit.
However, neither Austwick nor Hunter have noticed the same optimism about the back-to-school season in the UK market.
"We deal with a lot of people in the education sector and they have had no real demand for new systems yet," claims Austwick.
"There's been more demand for laptops but overall budgets have been restrained.
"We do upgrading with educational PC supplier Research Machines, but the feedback is that local educational authorities are holding money back."
Hunter adds: "The school restart is coming but the market seems quieter than last year. It's a wait and see game."
While future sales of DRam rely on many factors, the type of DRam being bought is undergoing a major shift.
DDR DRam eclipsed SDRam in 2002 as the main memory for PCs and notebooks. Within DDR, migration is underway from the current DDR266 to DDR333 and DDR400.
For some time now, the ceaseless introduction of faster PC processors has opened a large performance gap with current memory technology.
"The migration to DDR333 is well underway, as is the move to DDR400, but more slowly," says D'Elia.
"The driver for any move is the availability of supporting chipsets, and the DDR400 chipsets started appearing only in the past few weeks.
"The migration to DDR400 also relies on the ability of DRam manufacturers to get good yields at those higher rates because, while people want to move to DDR400, they will not do it at an excessive price."
The move to higher-speed memory is already visible in the sales figures, according to Crucial. The memory sales breakdown now looks like this: DDR266 50 per cent; DDR333 35 per cent; DDR400 15 per cent.
"The most popular memory with white box builders is 512MB modules of DDR333 memory," notes Summerfield.
Hunter agrees. "There is still demand for DDR266 but most of the demand is for DDR333. There is also quite a movement to DDR400."p>Austwick claims most of the demand is for DDR333 now, and notes that it is cheaper than DDR266 in some cases.
This time next year, DDR33 will be the main memory type, with DDR400 coming to the fore towards the end of the year.
But the milestone in the memory calendar will be the move to DDR2, the much-touted memory that will start at speeds of 400MHz and progress to 533MHz and 667MHz, all of which are impossible with current DDR1 memory.
The arrival date for DDR2 has been changed more often than a British Rail timetable, but the memory manufacturers have working samples testing now.
The first products should be seen towards the end of this year. However, it is not expected to represent a sizable share of the market until the end of 2004 or 2005.
"In 2001, DDR2 was expected in 2003, but then it was pushed back to 2005, then pulled back to 2004," Hunter recalls.
"From a performance point of view, DDR2 is the one that is really needed to bring DRam in line with the CPU speeds.
"This really is a new technology, so there's a lot of packaging and testing to be done. It's better to take their time and get it right."
The only problem on the horizon is that the over-supply situation of recent years is going to be replaced by a chronic shortage of product, as early as the end of this year.
It all comes down to fabrication plants (fabs) and the lack of them, according to the experts. Low revenues and large losses have forced many large DRam players to cut their spending on building fabs or upgrading old ones.
With no new fabs, there will be a shortage of high-performance memory products.
Many DRam makers have announced severe cuts in their infrastructure investment plans. "This will be the third year that capital investment has fallen, which means there are few new or upgraded fabs on the way," D'Elia warns.
"This means the supply and demand situation we have is going to flip at some stage, probably at the tail end of this year."
The memory market remains the roller coaster ride of the IT fair. Don't expect consolidation or a return to strong PC sales to change that; as soon as one aspect of the market looks good, another part collapses.
It is one of the few sectors left that keeps manufacturers, components distributors, PC builders and consumers on their toes at all times.
Crucial Technology (01355) 586 100
iSuppli (0118) 903 6001
ValueRAM Europe (01932) 738 888
VTEC (01264) 336 901
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