DRAM Industry Still Struggling

The DRAM industry continues to sputter along with a great deal of uncertainty about which companies are profitable and which companies are not. The Korean giants Hynix and Samsung continue to dominate the market and have even gained market share at the expense of Taiwan's Powerchip and Germany's Qimoda. Despite these gains in market share, the net imbalance between supply and demand and bloated inventories at PC manufacturers are still putting downward pressure on DRAM prices. This has even caused some companies to exit the market.

The Korea Times notes:

Hit by falling chip prices and rising inventories, chip manufacturers have begun to cut their capital expenditure, hoping the measures eventually lower supply.

The contract prices of some DRAM chips have risen about 30 percent this year. However, that is well short of making up for huge losses in 2007, when some chip prices plunged more than 90 percent, according to industry estimates.

But South Korea’s Samsung Electronics and Hynix Semiconductor, the world’s No. 1 and No. 2 DRAM makers, respectively, were winners in the quarter, adding to their market shares at the expense of troubled rivals such as Taiwan’s Powerchip and Qimonda of Germany.

"Samsung Electronics will hit the jackpot with an expanded market share if struggling chipmakers eventually exit the industry," says Kim Soo-kyoum, semiconductor director at researcher IDC.

"We forecast our market share to increase by one or two percentage points each year from the mid-30s toward the high 30s in coming years," Hong Wan-hoon, Samsung’s vice president at its semiconductor unit said in a conference call with analysts on the occasion of the second quarter earnings meeting.

Despite the optimism of gain in market share and the increase in DRAM prices over the past six months, iSuppli predicts that in the short to mid term, DRAM prices may drop by as much as 10%. iSuppli writes:

After experiencing a mild recovery in the second quarter, the global DRAM market is showing renewed signs of weakness, with prices expected to fall during the third quarter due to bloated inventories, according to iSuppli Corp.

After iSuppli upgraded its rating of near-term conditions for DRAM suppliers to “Neutral,” up from “Negative” on April 25, the market bottomed out and manufacturers’ profitability improved during the second quarter. Following months of losses, a few top-tier suppliers managed to attain profitability starting in June and a handful are expected to do so in the third quarter.

However, the market is showing renewed warning signs, with OEM contract prices for DRAM likely to decline in August and September. The main question now facing the industry is how much prices will decline during the third quarter.

“The average DRAM contract price is expected to decline by more than 10 percent from the current level by the end of the third quarter,” predicted Nam Hyung Kim, director and chief analyst, memory ICs, at iSuppli. “The inventory level in the channel and among PC OEMs has increased compared to the second quarter. Global economic conditions are adding more uncertainty on the demand side of the equation.”

DRAM manufacturers are in a tricky position. The massive losses endured in 2007 have not been made up and this has forced many of these companies to cut back on thei CAPEX. While the bigger companies should be able to endure, the smaller companies will probably be edged out of the market one by one.

iSuppli: iSuppli Issues Warning on Short-Term DRAM Market Conditions
The Korea Times: Local Chipmakers Beat Rivals in DRAM Market