DRAM bloodbath produces no winners

The global DRAM market has seen revenue drop by nearly 20 per cent compared with 2007

Industry analyst iSuppli has denounced the self-destructive tactics of DRAM manufacturers, likening their behaviour to a fatal game of chicken.

Many suppliers invested heavily in increasing capacity to gain market share from competitors. But there were no winners, said Nam Hyung Kim, director and chief analyst of memory integrated circuits (ICs) and storage for iSuppli.

Tragically, competitors only re-enforced the error by spending even more heavily. “Massive spending drives amid weakening demand created oversupply,” he said. The subsequent price declines, coupled with a worrying market downturn, meant that all suppliers were hurt.

Global DRAM revenue figures will show a fall of 19.8 per cent for 2008, he said. Last year’s revenue figure will be $25.2bn, down from $31.5bn in 2007.

As the industry suffers its second year of decline, Kim called for vendors to come up with an alternative strategy. But sadly, 2009 will not see the memory market getting any better. Global economic uncertainty will see DRAM market revenue will fall by four per cent in 2009.

“The industry has been in decline for seven straight quarters,” Kim said. “Now it is in a state of emergency with massive layoffs and production cuts. The Top-8 DRAM suppliers have lost nearly $8bn since 2007, and their total operating loss is expected to amount to $11bn by the end of next year.”

Four DRAM suppliers, Powerchip, Promos, Nanya, and Qimonda, are now seeking government bail-out packages.

Hynix is close to finalising an additional rescue package of $600m from its creditor, KDB, according to a local Korean newspaper. The double whammy of overinvestment and the global credit crunch clearly has affected the industry badly, and the prices remain below variable costs for DRAM suppliers.

Despite unhealthy economic conditions and an unclear demand picture, iSuppli cautiously predicted a market turn around in the second half of 2009 due to suppliers' rapid reduction in capacity growth. In the near term, Kim said, prices will stabilise and suppliers' losses will fall regardless of the rescue packages on offer.

“Until that time, the game of chicken has turned into a game of survival - a situation that will persist for months to come,” Kim said.