Lack of capital spending will mean higher DRAM prices
Memory chipmakers are cutting backing on capital expenditures for DRAM and flash chips
By Jim Carbone -- Purchasing, 12/16/2008 2:51:00 PM
Most semiconductor buyers have enjoyed falling DRAM and flash prices over the past two years. The good news is that prices will continue to fall in 2009.
The average price will fall by about 2% for DRAM and 17% for flash in 2009, according to researcher IC Insights. The bad news for buyers is that in 2010, prices should rise again because of a lack of capital expenditures (capex) by memory IC suppliers in 2009 for new fabs and equipment.
Memory chipmakers will invest in capex, but at lower levels than in 2007 and 2008. In 2007, total revenue for the memory IC industry was about $58 billion, says Jim Elliott, vice president of memory marketing at Samsung Semiconductor in San Jose, Calif. Memory chipmakers invested about $30 billion in capital expenditures for new fabs and new equipment to increase capacity, he says.
“That is about 53% of revenue, so for every dollar in revenue the industry invested 53 cents. The ratio was an all-time high,” says Elliott. He says such a level of investment is “unsustainable” and in 2009 the ratio will fall to the mid-20% range.
“It will be the lowest percentage we have seen since 2002-2003 time frame which set the stage for the boom years we had in 2004-2005 and 2006,” he says. During those years demand was strong, prices were stable and suppliers had strong revenue growth.
For buyers the reduction in the amount of capital spending won’t be felt until 2010 when supply will tighten, leadtimes will stretch and prices will increase.
Chip suppliers will boost capital spending in 2010 by about 15% and the effects will be felt in late 2011 in the form of greater supply, according to Bill McClean, president of IC Insights in Scottsdale, Ariz.
Also see: Capex cutbacks could cause supply headaches for electronics buyers
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