The trade press has recently carried reports of a NAND shortage which The Memory Guy finds to be very premature. True, NAND prices are not at their lowest point – today NAND can be found for 38 cents per gigabyte, up from a low of 31 cents in July. But does this constitute a shortage? No, not really.
One of the key indicators of a shortage is a crossover between spot and contract pricing – during an oversupply spot pricing is lower than contract pricing since OEMs and suppliers both place excess product on the market and compete on price. During a shortage the opposite is true – suppliers don’t have any excess product to put on the spot market and OEMs are looking to buy more than their contracted obligation to satisfy upside. Spot prices can soar high above contract prices.
The graphic in today’s post, a plot of NAND’s lowest spot and contract pricing from January 2011 to the present, shows that spot prices rose above contract prices for a brief period in August, but that was probably the result of a short-term panic response to Toshiba’s July announcement of a production cutback. Toshiba’s announcement did stop the price fall, but this kind of bounce is typical behavior for commodity memory markets – prices generally fall below production costs for a brief period, then rise back up to cost, and ride the cost curve down until a true shortage develops.
So when will we see a shortage? For the past two years Objective Analysis has been predicting that the current oversupply should end in mid-2013. We continue to hold that viewpoint. After the middle of next year the industry will enter a shortage and will subsequently experience stable prices through the first half of 2015.
This is the same sort of cycle that regularly recurs in commodity memories – NAND and DRAM. We are not experiencing a shortage today, although prices have indeed improved since July.