Memory Players May Start Making Money
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The DRAM industry posted its strongest sequential growth in five years during the second and third quarters of 2009, and that recovery is likely to continue through 2010, according to a report by iSuppli.
Global DRAM revenue rose by 35 percent from the second quarter of 2009 to the third quarter, according to a preliminary estimate from iSuppli. That comes on the heels of a 34 percent sequential increase in the second quarter.
The newest results end several quarter of decline and bleeding money by the memory makers, who had overbuilt capacity so much that even with memory demand increasing as much as 100 percent year-over-year, they still had excess supply and average selling prices (ASPs) were dropping.
In fact, capacity build-out only stopped when memory makers started running out of money and couldn't afford to add any more capacity. By that point they were, as one analyst put it, "wrapping dollar bills" around every memory chip they sold. Several makers went bankrupt.
There was a huge supply-side issue, according to Mike Howard, senior analyst for DRAM with iSuppli. "From 2005 to 2007, the capex [capital expenditures] on fabs was $50 billion. To give you some perspective, that was 55 percent of revenue, that all went to capacity. They were building fabs they had no business building and became horribly oversupplied," he told InternetNews.com.
Fast forward six to nine months. A lot of Taiwanese production capacity has shut down entirely -- not simply slowed down.
Now, the scenario is starting to recover. The growth in DRAM sales was undoubtedly helped by the burst in PC builds in anticipation of the Windows 7 release today. Intel and AMD both enjoyed better-than-expected sales as a result, and have strong projections for the fourth quarter.
Global DRAM ASPs rose 21 percent in the third quarter sequentially from Q2, which in turn was up 19 percent from Q1. Second-quarter's price increase was the first sequential increase in DRAM pricing since the fourth quarter of 2006.
Howard noted that Samsung turned a profit in the third quarter and that Micron is on its way to getting back to profitability as well. Five Taiwanese DRAM suppliers collectively saw monthly revenues increase by 15 percent per month for the last three months, he noted.
DRAM supply levels are also expected to remain fairly high in the fourth quarter, Howard said. DRAM demand is expected to improve in 2010 along with the general global economic recovery, according to the report.
Could get worse
Howard said there won't be a need for new capacity until 2011, but there's a problem for the Taiwanese makers. Most of them use an old manufacturing process, 7x nanometer, when newer fabs use 5x or 4x nanometers.
Also, the Taiwan plants make DDR2 memory, but right now, the big shift is to DDR3. Intel's Nehalem generation of processors, both desktop and server, use DDR3. AMD supports both, but DDR3 is preferred.
So the Taiwan chip makers are left with shuttered fabs using old process technology and they are in massive debt from their expansion, leaving them unable to upgrade their plants to make DDR3. Korean and Japanese makers like Samsung and Toshiba are not in such bad shape and may be the only ones able to make DDR3.
"They [Taiwan memory makers] are not in a position to add capacity," Howard said. "They can't shrink their die. They don't have DDR3. So there's this small window where they can do DDR2 but going forward that will start to dry up."
After that, he added, things could get even worse for the Taiwanese plants.