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Monday, April 28, 2008

SMIC pulls out, iSuppli upgrades DRAM

This article says SMIC, a Chinese foundry, has stopped producing DRAM. SMIC is roughly 1-2% of world supply. In a commodity market like DRAM, though, every little bit helps.

iSuppli has also upgraded their rating on DRAM from negative to neutral, citing a more rational supply environment, capacity cutbacks, and an expected seasonal build in Q3. They do point out that channel inventories are running significantly above healthy and normal levels, though, and that keeps them cautious.

I think DRAM is improving somewhat mostly because on a relative basis its so much less attractive than NAND production profit-wise. The problem brewing is that the cutbacks are disproportionately happening in DRAM. NAND production continues to be too aggressive. Goldman this morning was out with a piece on Hynix and made this point:

Our calculations shows that despite Hynix supply cuts, industry supply is now greater than what we were originally anticipating. We believe that the continued increase is supply despite the capex cuts confirms our view that industry supply cuts remain slow and the 8 inch retirement is offset by increases is 12 inch supply.

It's going to be very hard for price increases to stick with inventories in the channel running above historical norms.

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