DRAM market hits bottom; analysts predict prices will rise
By James Carbone -- Purchasing, 6/12/2008 6:00:00 AM
The global DRAM market appears to have bottomed out as revenue declined 7.4% to $5.9 billion in the first quarter from $6.4 billion in the fourth quarter, according to researcher iSuppli. In addition, DRAM revenue was down 39% from the first quarter of 2007.
With revenue declining, no DRAM supplier generated a profit, and losses were larger than expected.
If the market hasn't bottomed, memory buyers could see DRAM supply disruptions because some suppliers are facing serious financial issues, and potentially could leave the business.
DRAM prices are set to rise slightly during the coming months, but will still be much lower than last year. The average megabyte DRAM price dropped by 17% in the first quarter, following a 31% decline in the fourth quarter of 2007.
"The average per-megabyte price for commodity DRAM has dropped by more than 80% during the last 12 months," says Nam Hyung Kim, chief analyst at iSuppli. "Thus, in order to return to pricing levels from a year ago, suppliers would need to increase prices by 500%, boosting them to $6, up from $1—an impossible occurrence."
Because of low prices, DRAM suppliers will be challenged to be profitable in the near future. "If poor market conditions persist for a few more quarters, some suppliers may face bankruptcy risks due to shortages of cash," says Kim.
Others will severely cut back on capital spending. DRAM suppliers early this year said they plan to cut their capital spending on production capacity by about 40% in 2008 compared to 2007. However, due to a lack of profitability and diminishing cash reserves over the past several months, many suppliers won't be able to afford spending even at such a reduced level, and may slash their capital outlays by an even greater margin this year.
This should cause capital spending for the industry as a whole to decline by more than 50% in 2008 compared to 2007.
With capital spending cuts, DRAM megabyte shipment growth for the industry as a whole is expected to slow in 2008, according to Kim. DRAM megabyte shipments increased 89% in 2007. In 2008 they will only increase by about 55%, says Kim.
However, not all suppliers are scaling back. DRAM market leader Samsung boosted its production in the first quarter. Samsung sold $1.8 billion worth of DRAM in the first quarter, giving it a 30.6% share of global market revenue, up from 30.2% in the fourth quarter.
While this was 6.2% lower than the $1.9 billion in the fourth quarter, the overall DRAM market declined by 7.4% during the same period
Like Samsung, number three DRAM supplier Elpida Memory of Japan is also increasing production, with its megabyte output rising by 33% during the first quarter. This caused Elpida's share of global DRAM revenue to rise to 14.5% in the first quarter, up from 13% in the fourth quarter. Elpida's DRAM revenue increased to $857 million, up 3.4% from $830 million in the fourth quarter.
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