Memory Market Due for Big Shift in 2010
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Next year will begin a rapid transition to a new type of memory and it will require memory makers to be nimble financially and technologically to make the shift. This comes just as memory companies finally start to make money after years of bleeding red ink.
What that means is not all of the memory makers will be able to capitalize on this change, as some have found themselves in dire financial straights. Due to rampant overcapacity, memory was sold at a loss for almost a two-year period. As a result, many of the memory makers in Taiwan are in precarious financial health.
The Taiwan Economic News reports that many memory manufacturers have reached the limit of how much money banks will loan them.
For instance, the Bank of Taiwan limits outstanding loans to a single industry to 10 to 20 percent of its net worth and up to NT$230 billion (US$7.09 billion). Other Taiwan banks have similar policies, and many memory and TFT-LCD makers have maxed their credit cards, as it were.
Bad news when Double Data Rate 3 (DDR3) SDRAM takes off like a shot and DDR2 shrivels on the vine, which iSuppli predicts will happen next year. While iSuppli estimates DDR2 and DDR3 are about equal in market share now, by this time next year, it forecasts DDR2 will be just 15 percent of the market, with DDR3 holding 71 percent.
"Taiwan has a few challenges. It has to figure out if it's got the capital to make the transition or not, and where are they getting the technology? They don't have die taped out. They don't have clear partners to give them this technology. So that's the big question mark in DRAM market," said Mike Howard, senior DRAM analyst for iSuppli.
The Taiwan companies could get the technology they need to make DDR3 from a technology partner, but the four companies with the technology Samsung, Hynix, Elpida and Micron aren't in sharing moods.
Samsung and Hynix are doing extremely well with the DDR3 market now and have no motivation to share. Micron has partners in Taiwan already and doesn't really need more, and Elpida is in tough financial shape and not in a strong position, either, Howard noted.
The DDR3 advantage
DDR3 runs at a higher clock speed than DDR2 up to 50 percent faster in some settings and draws less power. It is the memory of choice for Intel's Nehalem generation of desktop and server processors. AMD, albeit slowly, is embracing it as well. Going forward, DDR2 will primarily be used in older Intel Penryn-generation products and AMD products.
The question becomes what will become of the Taiwan facilities. The actual manufacturing equipment isn't too radically different between DDR2 and DDR3, Howard notes, if you stay at an existing lithography. And Howard believes Taiwan won't allow its industry to suffer, either.
"There are thousands of people working in the memory industry over there. For the Taiwan government to just let something happen take a grain of salt with those comments," he said. "Nobody is going to let those fabs sit over there idle. They will either get repurposed for foundry or more likely than not a significant portion will be used to run memory."
The massive losses in the memory industry stem from gross overcapacity, so Howard hopes the four big DDR3 memory makers remember that. "The industry is at a point now where they grow bits by shrinking [the die], so supply and demand will be in fairly good alignment for the next three years," he said.
"Sitting on their hands could be the best thing [the big four] could do for the next couple of years. Focus on shrinks, focus on technology transition to DDR3 but don't build a new fab," Howard added.