DRAM Industry: Devastation, Resurgence or Both?

We have written here before on the problems in the semiconductor sector and especially among manufacturers of memory chips.

IC Insights has come out with a report that contends that the stage is set for strong growth in DRAM.

The way the industry is shrinking could actually be a positive. Several DRAM vendors, including Micron (MU), are eliminating their 200mm wafer fab capacity. Qimonda (QI) and possibly other DRAM vendors are filing for bankruptcy. The Taiwanese government is consolidating and bailing out a group of their DRAM manufacturers.

What is the outcome of all this destruction and devastation? IC Insights thinks that DRAM supplies will tighten and more closely align with demand as the year progresses.

After a tough 1Q2009, the company expects demand will increase sharply (see chart below). IC Insights forecasts quarterly growth to $4.9 billion (17%), $5.9 billion (21%), and $6.8 billion (15%) to finish the year.



This sounds good, but even if this positive scenario does play out as expected, DRAM sales for 2009 will still be 12% lower than in 2008. And keep in mind that 2008 finished on a low note.

IC Insights believes that the first quarter of 2009 will be the bottom for the DRAM industry. I can see how the reduction in worldwide production capacity can help stabilize chip prices, but I find it difficult to accept that demand will increase sufficiently to make the numbers illustrated in the chart above. IC Insights points to strong increases in spot prices for some versions of 512Mb and 1Gb DRAM chips since the beginning of 2009 as reason to believe these sales numbers could actually come to pass.

With DRAM sales driven mostly by consumer electronics demand and general PC demand, though, it still seems that expectations for a rebound in the DRAM industry this soon is a stretch. On the other hand, IC Insights' contention that the bottom is 1Q2009 may not be too far off the mark. So how do you feel about timing the bottom, even for just one sector?

Comments

[semi supplier:]

Here's a tidbit I just read. Haven't confirmed it yet but we just querried our customers (semi 1t tier mfg's) and most said their FAB's were 'filling up' or 'full' now. Our info comes from the grun engineers using our equipment, not from corporate headquarters. Below is an article out of Taiwan saying that the response to the DRAM glut will now be overcorrecting later this year: !!

from FT Times today - D-Ram glut may soon turn into shortage
By Robin Kwong in Taipei
Published: March 25 2009 13:41 | Last updated: March 25 2009 13:41
Frank Huang, World Semiconductor Council chairman, on Wednesday warned that the aggressive capacity cuts in the D-Ram memory chip sector over the past few months would likely result in a severe shortage by the end of the year that could disrupt shipments of computers and other electronics.
The global D-Ram sector faced its biggest crisis in its 16 years of existence last year as industry over-expansion coincided with a drop in demand for computers as a result of the global economic downturn.
But Mr Huang, who is also chairman of Powerchip, one of the biggest Taiwan D-Ram makers, said the industry would begin to recover by the second half of this year, and downstream producers of PCs and other electronic products will face “a shortage bigger than I have ever seen in the past 16 years ... this will affect global PC shipments.”
Last year's crisis, reflected in the price of D-Ram falling by more than half to below cost for most producers by the end of last year, led to a store of 1bn unsold D-Ram chips and nearly $10bn in total losses by the industry.
This prompted the biggest manufacturers, mainly in South Korea and Taiwan, to cut production aggressively. Others, such as Germany's Qimonda, fell into bankruptcy.
Nearly half of world production has been cut since the beginning of the year, Mr Huang said. This means that by June, the 1bn stockpiled chips will all be sold and by the end of the year there will be a global shortage of 2bn chips, equivalent to the D-Ram needed for 100m computers.
“It has been a difficult time but we can finally see spring coming,” said Mr Huang.
Part of the reason for the impending shortage, he said, was that most D-Ram companies are facing financial difficulties and would find it hard to revive production quickly. The other reason is that “wolf has been cried too many times [on a market recovery]. Everyone is too cautious,” he said. Powerchip and Rexchip, its joint venture with Japan's Elpida, would wait until prices rebounded before drastically increasing production and building up inventory, he said.
This expected change in the supply and demand equation would prompt the Taiwan government to re-assess its plans to restructure the fragmented domestic industry, Mr Huang said. Taipei earlier announced the establishment of Taiwan Memory Corporation, a partially state-owned company aimed at ensuring Taiwan had proprietary D-Ram technology so it could remain competitive in the future.
TMC is due to announce next week whether it will partner with Elpida or the US's Micron to achieve this goal.
Mr Huang on Wednesday played down the possibility of Elpida partnering with TMC, and said his companies would have nothing to do with the government entity.
“John Hsuan [TMC chairman] wants 40 per cent of Rexchip ... over my dead body,” he said. “I might have considered it two months ago if they came with cash but now, no way.”

Mar 26 03:59 PM