Electronics Production | July 29, 2007

DRAM Disaster Sinks Suppliers

Samsung gains lead over rest of market in the Second quarter this year, according to the latest DRAM report from iSuppli. The market clearly hit the bottom in the second quarter, and the suppliers' profitability will be much better in the second half of the year, iSuppli predicts.
How bad were conditions in the DRAM market in the second quarter? Analyst firm iSuppli lists how bad they were.

- So bad that Global DRAM revenue declined by 24.1 percent, falling to $7.3 billion, down from $9.7 billion in the first quarter.

- So bad that Samsung Electronics Co. Ltd. and Micron Technology Inc., which suffered 16.7 percent and 15.7 percent respective declines in revenue during the quarter, actually significantly outperformed the market and gained share.

- So bad that the DRAM per-megabit Average Selling Price (ASP) plunge of 39 percent was actually marginally good news, because it was slightly less than the 40 percent drop iSuppli Corp. had predicted.

Indeed, it was terrible quarter for DRAM makers, with only one supplier among the Top-10, Etron Technology Inc., managing to grow its revenue during the period.
A major culprit behind the poor market conditions was a rise in part availability, with megabit shipments increasing by 23 percent during the period. This was nearly 3 points higher than the increase predicted by iSuppli, indicating that the market oversupply in the second quarter was even more severe than anticipated.

The second quarter's 23 percent sequential megabit growth was even higher than the 21 percent rise in the first quarter. The DRAM bit growth in the first half of 2007 increased by 89 percent compared to the first half of 2006.

This oversupplied market condition contributed greatly to the drop in prices in the second quarter.

Samsung distances itself from the pack
With its bit shipment increasing by 34 percent, DRAM industry leader Samsung Electronics Co. Ltd. of South Korea, widened its market-share gap with its competitors. The company claimed a 28.4 percent slice of global DRAM dollars during the second quarter—a 2.5 percentage point increase in market share compared to the first quarter. Samsung's share advance came despite the fact that its DRAM revenue declined by $419.2 million compared to the first quarter.

In terms of unit shipments, Samsung regained the top rank from its local rival, Hynix Semiconductor Inc.

Hynix captured 20.7 percent worth of DRAM sales market share during the quarter, keeping it in the number-two position in the market. With a 29.7 percent sales decrease, Hynix underperformed relative to the overall market. Hynix also lost its number one market position in terms of unit shipments to Samsung Electronics.

The tables blow presents iSuppli's estimate of DRAM revenue and unit-shipment market share in the second quarter.

Table 1: Preliminary DRAM Revenue Market Share In Q2, 2007 (Revenue in Millions of USD)

Table 2: Preliminary DRAM Unit Shipment Market Share In Q2, 2007 (512Mbit Equivalents in Millions of Units)

The perils of Elpida
Due to its low unit shipments, Elpida Memory Inc. of Japan suffered slightly more decline than overall market, with a 24.4 percent decrease in revenue, bringing an end to the company's recent market-share advances. Elpida is poised for high growth in production when it completes its transition. Furthermore , Elpida's new joint-venture with Powerchip—Rexchip—is expected to ramp up production faster than anticipated due to higher initial pilot run yields of its 70nm production. iSuppli predicts Rexchip will ramp up to full production in the third quarter this year.

Comeback for Micron
With its sales declining by far less than the industry average, Micron Technology Inc. of the United States managed to increase its market share to 10.1 percent in the second quarter, up from 9.1 percent in the first quarter.

The company managed 30 percent growth in megabit shipment. This level of growth hasn't been seen at Micron since the company initiated its diversification strategy starting in 2002. Until recently, Micron has been focusing production from DRAM to image sensors and other products, slowing its bit DRAM production growth.

Second-half outlook
In contrast to the other DRAM suppliers, Germany's Qimonda AG announced it will cut its capital spending plan for 2007 as well as for 2008. This is a positive sign for the market, as it will help reduce supply growth, possibly stabilizing prices.

As expected, the Top-5 suppliers, Samsung, Hynix, Qimonda, Elpida and Micron, all provided production guidelines for the third quarter that were lower than their shipments in the second quarter. Reduced supply growth in the third quarter, along with a seasonal demand pick up, will stabilize market conditions in the second half of the year.

While the DRAM companies encountered varying fortunes in the second quarter, there were no real losers and winners. The industry as a whole experienced painful price drops amid an extremely oversupplied situation.
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