Revenue this year for the dynamic random access memory (DRAM) industry will rise in the double digits despite being clobbered by weak PC sales and an overly large manufacturing base, but key risks remain that could completely redraw the financial picture and send the space into a third straight year of contraction, according to an IHS iSuppli DRAM market brief from information and analytics provider IHS.
DRAM revenue in 2013 is forecast to reach $30.0 billion, a significant increase of 14 percent from $26.4 billion last year. This year, in fact, marks the first time in at least three years that DRAM revenue will grow, reversing the downturn suffered by the space in both 2011 and 2012. Given the slightly optimistic projections for 2013, DRAM bit shipments will increase to 38.7 billion gigabits, up from 28.6 billion gigabits in 2012, with bit growth estimated to climb 36 percent.
The keys to a strong 2013 for DRAM are based on a number of significant and fundamental changes sweeping the industry, resulting in a brighter outlook for the year. Among these factors are the final integration of Elpida Memory with its buyer, Micron Technology; the continued transition to 2x-nanometer technology of leading players Samsung Electronics and SK Hynix; the disposition of distressed Taiwanese producers ProMOS Technologies and Powerchip Technology; and how PC shipments—especially Ultrabooks—fare this year.
For U.S.-based Micron, the 2012 deal in which it purchased bankrupt Elpida of Japan will finally close sometime in the second quarter this year. This means that starting in the middle of 2013, Elpida and its associated fab Rexchip will move to Micron’s DRAM technology. The transition will pave the way toward reduced output during the second half of the year, which would serve to favorably curb persistent oversupply within the industry and strengthen pricing, stabilizing the market overall.
In the case of Samsung and SK Hynix, the space’s most powerful DRAM producers, both suppliers will finish 2013 with approximately 60 percent of their wafers at 2x nanometer. The move to a more efficient lithography will result in bit growth of 30 to 35 percent—a boon for the players and to the industry at large.
Taiwan’s ProMOS and Powerchip, currently reeling from low revenue and high debt, would likely have a positive impact on the industry if they found a buyer. The net drop in DRAM production if their fabs were sold would be minimal, but the cut in production would still help to mitigate oversupply in the first half of the year.
A fourth factor that will help brighten DRAM prospects this year is if PC shipments grow in 2013. PC shipments are forecast to expand 8 percent in 2013 to 370 million units, in light of high hopes being bestowed on touch-enabled Ultrabooks running the new Windows 8 operating system.
Nonetheless, there is significant risk to this last assumption, given that PC shipments have declined for the last two years. The high price of Ultrabooks, in particular, has thwarted adoption of the superthin computers, and the public at large has been more enamored of flashier gadgets like tablets and smartphones.
Risk factors: PC shipments fail, and Micron’s actions impact the industry
If Ultrabooks and Windows 8 do not prove to be the vaunted growth drivers that everyone hopes them to be, the demand profile for DRAM in 2013 will be markedly different, IHS iSuppli predicts.
A decline this year of 2 percent in PC shipments, for instance, will mean that the DRAM industry remains oversupplied for the entire year, with prices falling a much larger 29 percent than the expected 16 percent. The net result would be a DRAM revenue decline of 7 percent to $24.6 billion—or a third consecutive year of contraction for the industry since 2010.
A second risk that could derail DRAM prospects this year relates to what Micron does after it absorbs Elpida and Rexchip. An optimistic assumption calls for Micron to shift existing DRAM capacity from the acquired companies to the more lucrative NAND flash memory. If this happens, DRAM production would be reduced to the benefit of the industry, resulting in greater undersupply and causing correspondingly stronger prices. However, the opposite would be true—with oversupply continuing and weak prices enduring—if Micron elects to not allocate DRAM capacity from Elpida and Rexchip, for whatever reasons it chooses.
Given the notoriously volatile nature of the industry, DRAM revenue prospects remain highly susceptible to both internal and external forces in 2013, IHS iSuppli believes. A great deal rests on the verdict on Ultrabooks, Windows 8 and PCs—and on Micron’s capacity allocation decisions for the rest of the industry.
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