A flood of inferior memory chips is expected to hit the market in the near future, after the world's third-largest manufacturer, Elpida Memory, filed for bankruptcy.
The Japan-based company's collapse is also expected to push memory chip prices higher by as much as 10% as other companies cash in on the shortfall in supply.
Elpida made about 13% of the world's PC memory chips and was in third place, after Samsung and Hynix, which together own about 70% of the market. It was founded in 1999 to manufacture DRAM.
However, towards the end of February, Elpida said it was filing for corporate restructuring under Japan's Corporate Reorganisation Act, that country's equivalent of bankruptcy protection.
Tidal wave
Ryan Martyn, a director of ICT distributor Syntech SA, says the price of chips will increase year-on-year by about 30% overall, and the market will also be hit by shortages of brand names. However, the real concern is that the market will be flooded with cheap chips as Elpida uses up its raw material in a bid to get some cash in.
Elpida said in a statement that it had been hit by the “record-breaking strong” yen against the US dollar, and the steep fall of the price of DRAM products, because of fiercer competition. It was also affected by the Thailand floods, which led to a loss in demand.
The Japanese firm said if it continued to operate by itself, it would have faced a cash shortage soon.
Martyn says the sector saw a similar situation when a comparable company collapsed a few years ago. He explains that other manufacturers held back supply, which pushed prices up of name brands, leading to people seeking alternative sources.
However, at the same time, excess stock as a result of the liquidation flooded the market, which is expected to happen again for the next six months, says Martyn. He is concerned that consumers will be lured into buying products that are not covered by a warranty and have not been through quality assurance checks.
“There is going to be a shortage of memory, which will lead to price increases worldwide. During this time users should be very wary of trying to keep a lid on costs as it is very likely that we will see a number of manufacturers trying to elbow into the market with cheaper offerings.
“Users should be careful of buying purely on price as we suspect there will be a flood of inferior quality computer-memory chips from some manufacturers, which could have a profound impact on performance and reliability.”
Price hike
Mustek CEO David Kan says removing 13% of the global memory chip pool will result in prices moving up. So far, chips have become 10% more expensive, he says.
Kan says Samsung and Hynix will be price-setters and, while it is difficult to predict their actions, he expects costs to increase by another 10% in the next week or so. However, this will only add a total of $1.50 to every 2GB, which will not affect PC prices much, he adds.
Tarsus CEO Pierre Spies adds DDR2 chips are in short supply, which will have an impact on the upgrade portion of the market.
“Our view is that DRAM manufacturers are taking a 'wait and see' approach to the whole Elpida situation, and that the sudden spike in prices at the end of February was a knee-jerk reaction. We feel that pricing will come back down in the mid-term, admittedly not to the levels they were at.”
Spies explains some manufacturers could be using the current market conditions and speculations to make a quick profit.
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