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iSuppli Downgrades Rating Of Memory Market

The major cause of the price decline is a continuing oversupply of parts, the industry analyst firm asserts.

ISuppli on Tuesday downgraded its rating for near-term conditions of the DRAM and NAND flash markets to "negative" from "neutral," citing an oversupply and plunging prices. The downgrade applies to conditions faced by suppliers of the electronic components.

The global average selling price for 512Mbit NAND flash is expected to drop to 46 cents this quarter, down 24% from 60 cents in the previous quarter, iSuppli said. In contrast, the 512Mbit NAND ASP increased in price in the second quarter.

"The major cause of the price decline is a continuing oversupply of parts," Nam Hyung Kim, director and chief analyst for memory integrated circuits and storage systems at iSuppli, said in a statement. "The oversupply is being caused mainly by the South Korean memory manufacturers shifting production capacity from DRAM to NAND.

DRAM is a memory component found in computers. NAND is a type of memory found in USB flash drives.

The DRAM market is also in the dumps, with prices deteriorating since September. Pricing for 512Mbit double data rate 2 (DDR2) DRAM declined in the Asia spot market to less than $1 this week. The drop is likely to result in most DRAM suppliers posting losses in the fourth quarter. The DRAM industry's average operating profitability is expected to continue to be negative in the first quarter of 2008, the fourth consecutive quarter in the red.

Despite the current doldrums, iSuppli is cautiously predicting a slow improvement of market conditions over the next few quarters. DRAM is expected to recover first, allowing most suppliers to achieve an operating profit in the second quarter of 2008. The NAND market, however, is expected to continue deteriorating through the second quarter, before recovering in the third quarter.

"The DRAM recovery will be driven by the supply side, with inventory dwindling and growth in bit production decreasing," Kim said. "This will cause availability to tighten and prices to rise."

That scenario, however, depends on suppliers behaving rationally, and not engaging in any massive production increases, which could send DRAM pricing into a new dive, Kim said. "Any irrationality could drag out the market recovery."

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