Decreased output from manufacturers and many other new changes are occurring in the market for dynamic random access memory (DRAM) that could help rally the previously beleaguered industry toward sustained growth, according to a DRAM Dynamics market brief from information and analytics provider IHS.
While DRAM wafer output peaked in 2008 at 16.4 million 300-millimeter-equivalent wafers, wafer production since then is expected to be down 24 percent to 13.0 million wafers this year. The projected cut will be the second straight year of deliberate downsizing following an 8 percent drop-off last year, with this year's output alone to be slashed 5 percent compared to 2012 levels, as shown in Figure 6.
But curtailing DRAM capacity is a positive move for the industry, resulting in a gradual normalization between supply and demand for DRAM. The industry is now believed to be perhaps slightly undersized relative to demand moving forward because of the intentional slash in output, and DRAM pricing can continue to remain firm if production remains slightly behind demand.
DRAM revenue rose in the first quarter to its highest level in nearly two years, thanks to a jump in commodity prices spurred by demand from the server PC and mobile PC segments. Pricing for the bellwether 4-gigabyte DDR3 module rose from $16 in December to $23 in March, an unusually large increase.
Other factors helping the DRAM market
While volatility in the DRAM market was a longstanding given for many years, the industry has changed in several structural ways during the last decade. These changes, in turn, could pave a smoother road forward for the industry.
For instance, demand is diversifying away from PCs alone to servers and mobile devices. Nearly 65 percent of all DRAM bit shipments went to a desktop or laptop 10 years ago, but that figure is less than 50 percent today and will fall further to south of 40 percent by the end of next year. Meanwhile, servers and mobile gadgets like smartphones and tablets command an increasing share of DRAM bit shipments.
The overall result is that the travails of one segment-like the embattled PC space, as an example-won't be able to disrupt the entire market, lacking the size and critical mass to do so. The server and mobile segments also help by using more specialized products that require a more involved design-in process, thereby reducing the commodity nature of the DRAM that the segments consume.
In another change that has benefited the hypercompetitive industry, a number of companies in the past few years have either reduced their presence or have altogether exited the market. The Taiwanese are no longer the powerhouse they used to be, while notable DRAM developers Qimonda of Germany and Elpida Memory of Japan have gone bankrupt and have been bought out by other players. By the end of this year, only three DRAM players will remain-Samsung and SK Hynix of South Korea, and U.S.-based Micron Technology. With fewer players to influence the market, a more conservative approach toward capacity expansion is expected, and more stable growth can follow.
A final factor helping the DRAM space is the slower pace of DRAM shrink, with each generation taking longer to arrive. The engineering challenges associated with shrinking DRAM size below 30 nanometer-and eventually below 20 nanometer-are considerable. The slowing shrink cadence is resulting in slower bit growth, which is keeping supply in better balance with demand.
The challenge of constant undersupply
While the current state of intermittent undersupply is favorable to the industry, a state of persistent undersupply could backfire and prove harmful. Large, obstinate supply shortfalls will result in broader adoption of competing technologies as devices seek alternatives besides DRAM, and possible regulatory intervention could occur over perceived anticompetitive concerns.
Clearly then, it is in the best interest of the industry to manage supply so that it more closely matches demand-and thereby control its own future. Next year, manufacturers will need to seriously look at options for expanding manufacturing capacity to accommodate demand. But properly managed, DRAM prospects can remain unsullied and healthy, IHS believes.
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