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DRAM Revenue Rises in Q1 as Market Rally Continues

27 May 2013

The market for dynamic random access memory (DRAM) continued on its surprising upward mobility as industry revenue grew sequentially for the second straight time during the first quarter, empowered by a heartening rise in average DRAM prices, according to a DRAM Dynamics market brief from information and analytics provider IHS.

DRAM revenue rose to $7.1 billion from the January to March period this year, up from $6.7 billion in the fourth quarter of 2012 and from $6.4 billion in the third. Revenue was the highest in nearly two years, exceeded only by the $8.1 billion set during the second quarter of 2011.

The strength of the DRAM market was largely due to a rally in the commodity segment after shipments had failed to keep up with demand, causing an undersupply of the memory type. In a bit of welcome news for the industry amid continuing weakness in DRAM's core PC market, demand from the server and mobile segments offset the ongoing decline in PC demand, resulting in a shortfall of available DRAM. The inadequate supply of DRAM, in turn, pushed the price of the bellwether 4-gigabyte DDR3 module from $16 in December to $23 in March-a huge increase unusual for its timing and magnitude.

The jump in commodity prices helped the market continue the steady recovery that started in the fourth quarter, and the latest expansion indicated the industry had passed its lowest point and was returning to growth.

Hike in DDR3 pricing was key factor in determining growth

The rally in pricing did not benefit all companies equally, however, favoring only those with high exposure to DDR3.

Idaho-based Micron Technology, for instance, enjoyed a stunning 40 percent rise in revenue as takings surged to $998 million from $714 million. Micron had the largest relative DDR3 output among all DRAM suppliers, and the current market dynamics vastly improved its financial position. And while its ranking in the DRAM market remained unchanged at No. 4, the revenue increase expanded Micron's total DRAM market share to 14 percent, up a robust three percentage points.

Micron also benefited from a full quarter of expanded access to DRAM production at Inotera Memories, a Taiwanese producer bought out by the U.S. producer last year. As a result, Micron's shipments grew more than 30 percent, boosting its overall position and strength.

Meanwhile, top supplier Samsung Electronics of South Korea suffered a bad beating as its share of the DRAM market tumbled to 36 percent, down a massive 5 percentage points. Among the major suppliers, Samsung has the lowest mix of DDR3 product in its portfolio given the company's emphasis on mobile DRAM. Missing out on the DDR3 rally during the period, Samsung's revenue fell to $2.6 billion, down from $2.9 billion.

For their part, second-ranked SK Hynix of South Korea and third-place Elpida Memory of Japan enjoyed modest gains in revenue following a respectable amount of DDR3 in their product offerings. SK Hynix closed the first quarter with revenue of $1.8 billion, up sequentially from $1.7 billion; Elpida saw revenue climb to $1.1 billion from $903 million.

At a distant fifth and rounding out the Top 5 was Nanya Technology of Taiwan with revenue of $291 million, up 4 percent from $238 million.

Mobile DRAM to pull its own weight, too

Moving forward, the increase in DDR3 pricing is not expected to continue without the same occurring for mobile DRAM prices. Manufacturers, ever mindful of margins, are likely to shift capacity allocation away from the low-margin DRAM commodity space at some point in the future after the current undersupply situation is resolved. The manufacturers will then focus on mobile DRAM, which historically has had a more attractive contribution margin, eventually causing a rise in mobile DRAM pricing.

Even so, the current rally is encouraging as it is unusual, marking a time when the usually stodgy commodity DRAM appears to be a more attractive business than the normally more lucrative mobile DRAM, temporarily relegated to the back seat for the time being.

Read more >> DRAM Market Up in Q1, Market Shares Shift

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