Long-term clients of mine, even those dating back to my decade at Dataquest in the 1990s, are familiar with the concept that spot prices behave differently during a shortage. When there is too much DRAM spot prices remain below contract prices, because OEMs who bought too much product clear their inventory at quarter end (and other times) by selling at a loss.
During a shortage the opposite is true: OEMS find that they can’t get as much DRAM as they wanted through their contract sources, so they shop for the balance on the spot market. Since there are more buyers than sellers, spot prices invariably raise higher than contract prices.
When the prices change from one state of affairs to the other then it is safe to assume that the market has changed from a shortage to an oversupply, or from an oversupply to a shortage.
Of course, there are periods of flux, where, for a day or two, or a week or two, spot prices indicate a change, but the real story is told when there is an extended change.
Lately we have noticed that DRAM average spot price per gigabyte has remained higher than contract prices. In fact, this has been the case for nearly one and a half months, longer than any time since the first half of 2013. This is illustrated in this post’s graphic.
This could be the beginning of the serious shortage that Objective Analysis has been forecasting for this period, however NAND flash, which should fall into synch with DRAM, is still seeing soft pricing.
Still, indications are that a shortage will indeed develop this year, and when it does Objective Analysis‘ clients will have taken measures to ensure that they will not be caught in short supply. We can only hope that those who are not currently engaged with us will have received similar advice from their market research providers.