China's DRAM Market Tries to Shake Off Olympic Blues, Says iSuppli

Sept 15, 2008 09:00 Nikkei Electronics Asia

China was hoping for an economic boost from the Summer Olympic Games, but for the nation's DRAM market, the event actually had the opposite effect, plowing a trough in demand right before the all-important holiday season, according to iSuppli Corp. However, iSuppli believes DRAM demand in the nation will begin to recover sharply after the conclusion of the Olympics and the start of the pre-holiday ramp up.

"The games clashed with the traditional summer promotional season for PCs in China, with many consumers glued to their TVs and absent from stores," said John Lei, analyst, memory ICs and storage systems for iSuppli. "This caused sales momentum to slow. Furthermore, all the IT equipment required for the Olympics was purchased years before the event, meaning there was no Olympic boost for DRAM demand."

Even before the Olympics, consumer PC demand in China was already facing some economic headwinds due to rising inflation. Beyond this, China's government engaged in more strict control of imports during the Olympics, causing purchasing activity on the DRAM spot memory market to decline.

"Much of the demand that disappeared during the Olympics could return during the holiday season," Lei said. "Consumers will be upgrading and replacing their old PCs to meet software requirements. With DRAM prices at low levels and inflation more tame, consumers may be out buying PCs in force during the holiday season."

With most of the construction and provisioning of national IT facilities having been completed prior to the Olympics, most PCs now in use at these operations are at least two to three years old. These systems will need to be replaced or upgraded, particularly with the 60th National Day events to be held in 2009.

Furthermore, fast-growing Chinese Internet-service companies will be upgrading their systems as they expand their operations in order to attract more customers. Rather than buying completely new equipment, many of these companies are likely to take a cheaper route and upgrade the DRAM in many of their systems, iSuppli predicts.

While demand in China is expected to recover, the DRAM industry still faces a significant overhang of inventory, which is causing prices to decline. In the spot memory market, pricing for 1-Gbit Double Data Rate 2 (DDR2) DRAM dropped by a stunning 18% during the week of Sept 1. The research firm expects a severe price drop for the entire month of September. Because of this, it's a great time to buy DRAM in China, according to iSuppli.

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