Buyers can expect DRAM prices to increase because inventory levels are falling.Buyers can expect prices for dynamic random access memory (DRAM) to rise because DRAM inventory levels are declining, according to market researcher IHS.

IHS’s weeks of DRAM inventory index showed that inventory levels have dropped from 12.1 weeks in the fourth quarter of 2011 to 11.6 weeks in the first quarter of this year. It was the second consecutive quarter that inventory levels fell, IHS reported.

Declining stockpiles of DRAM mean that supply and demand are coming into balance, which will result in stable prices.

The latest drop in the inventory index is due primarily to an aggressive inventory reduction by Japanese supplier Elpida memory Inc. which had declared bankruptcy in February, said Clifford Leimbach, analyst for memory demand forecasting at IHS.

“The action taken by Elpida, and the resulting drop in overall inventory levels for the industry in the first, is a one-time event unlikely to be repeated," he said. However, the reduction in DRAM inventory “means that pricing should continue to strengthen in the second half of the year,” Leimbach noted.

Inventory in the first quarter could have declined to even lower levels were it not for the elevated DRAM stockpiles of two of the largest DRAM players. SK Hynix Semiconductor Inc. of South Korea and U.S.-based Micron Technology Inc. saw a modest 15 percent and 8 percent rise, respectively, in their inventories during the period, putting upward pressure on the index value that also prevented the drop from being larger in the first quarter.

Average pricing for DRAM in the 1 gigabit-equivalent density is estimated to have risen by 1.5 percent in the second quarter and then should to increase by 7.7 percent and 3.5 percent in the third and fourth quarters respectively, according to IHS. This follows sharp declines of 24 percent and 12.4 percent in the third and fourth quarters of 2011, as well as a 5.9 percent decrease in the first quarter of 2012.

DRAM suppliers believe prices will increase in the second half because they expect PC demand will rise. Microsoft will release Windows 8, its new operating system, and new ultrabooks are expected to be introduced in the second half. Increased PC demand will spur greater DRAM demand.