As the dynamic random access memory (DRAM) market successfully transitions to more efficient lower-nanometer technology, cost reductions and savings for the industry will level off starting in 2012, according to new IHS iSuppli research.
While the DRAM industry has been more aggressive in recent quarters about pushing down the lithography node, the remainder of the year will see these efforts taper off. The weighted average node for the industry increased from 5.3 percent in the fourth quarter of 2010 to 5.6 percent in the first quarter this year, indicating a more forceful drive toward DRAM technology transition. During this time, cost reductions improved from 7.8 percent to 14.2 percent, with wafer costs falling in line with the lithography move.
Starting in the second quarter, however, the industry is expected to pursue a less aggressive approach on lithography migration, and the rate of cost reduction also will decline in the process, IHS iSuppli research shows. The lithography reduction will drop to 5.2 percent in the second quarter, slide to 4.8 percent in the third and fall to 3.7 percent by the final quarter of the year. Echoing the lithography pullback, cost reductions will slow to 12 percent in the second quarter, 9 percent in the third quarter and 4 percent in the fourth quarter.
To be sure, the industry is going through several transitions, such as the strategic shift away from commodity DRAM by many suppliers, new manufacturing and foundry alliances, and the continued migration to 40-nanometer (nm) technology and beyond. All these factors will have an impact on supply-and-demand dynamics, which will affect profitability and supplier earnings, IHS believes.
Surprisingly, the industry remained in the black in the first-quarter, boosted by the substantial margin built up during the previous up cycle for the market, which began in the second quarter of 2009 and lasted until the end of the rally a year later. And despite the downward streak in the average street prices of DRAM, the current cycle is no exception to historical patterns that have seen the ebb and flow of demand cycles, accompanied by fluctuations in chip prices and DRAM company earnings.
In particular, the cost declines projected for the industry are expected to come from technology migration, with DRAM chips increasingly made with new lithography equipment and technology. From the fourth quarter of 2010 to the first quarter this year, the main drivers of lithography change were Inotera, whose average lithography mode crossed over to 50 nm, and Rexchip, which went to 40 nm.
And while DRAM cost declines can come from factors other than lithography migration, those extra considerations can be safely ruled out for the time being, IHS iSuppli research shows. One factor, capacity growth in order to maximize efficiencies of scale, will be limited as companies continue to exercise caution on expansion-specific capital expenditure. Another factor, operational efficiencies, is not expected to make much of a dent in further cost savings, given that companies remain relatively lean from the previous as well as current downturns.
As the transition to 4x-nanometer fully completes next year, cost declines will level off even more, IHS estimates show. Cost reductions relative to lithography migration will reach 6.5 percent per quarter during the remainder of 2011, and then narrow to 3.3 percent in 2012. With lithography migrations becoming less spirited in the coming quarters, cost declines will mirror the pattern—strong for now, and then fading in 2012.
Read More > DRAM Cost Reductions Running Strong for Now, Fading in 2012