Regional
DRAM chicken game yields no winners
IN THE dangerous game of “chicken,” ago? After massive losses in 2001, the As a result of this game of chicken,
two drivers aim their cars at each other overall DRAM business had there are no winners among the DRAM
and accelerate to full speed. The first accumulated profits until 2006. At the suppliers. The industry leader, Samsung
driver to lose his nerve and swerve is same time, DRAM makers increased Electronics, which has spent about $27
the loser, or the chicken. capital expenditures by more than billion on DRAM manufacturing
“In the multibillion DRAM industry, threefold, rising to $21.1 billion in 2007, investments since 2000, holds the same
many suppliers have engaged in up from $7 billion in 2001. Since 2000, DRAM market share this year as it did in
massive spending programmes in a bid the DRAM industry has spent more than 2000, at about 30 percent. The South
to increase capacity and take market $100 billion, which is almost double the Korean memory giant in the fourth
share from competitors,” said Nam level of the Top-8 suppliers’ combined quarter of 2008 likely lost money in its
Hyung Kim, director and chief analyst of market capitalisation today. DRAM business amid oversupply and
memory ICs and storage for iSuppli “Three Taiwan based DRAM the global economic slowdown.
Corp. “Using this the strategy, DRAM suppliers, whose total market Four DRAM suppliers, Powerchip,
makers hoped that their competitors capitalisation now is around $1.4 billion, Promos, Nanya, and Qimonda, now are
would be forced to back out of the have spent a total of more than $20 seeking government bail-out packages.
spending race and concede market billion on capital expenditures since Qimonda is now fighting bankruptcy
share. However, in 2008, no one won 2000, which represents an enormous and Hynix is close to finalizing an
this game of chicken, with players overinvestment during the period,” Kim additional rescue package of $600
continuing their massive spending drive said. “Furthermore, most capital million from its creditor, KDB, according
amid weakening demand, contributing expenditure money has been raised by to a local Korean newspaper. The
to oversupply, price declines and a issuing debt among suppliers. The Korean government has had to deny it
massive market downturn that is hurting frozen credit market is punishing is seeking buyers for Hynix.
all suppliers.” suppliers that need cash not for Despite unhealthy economic
Global DRAM revenue will fall by investment, but for their very survival.” conditions and an unclear demand
19.8% in 2008 to $25.2 billion, down Why did the industry spend such picture, iSuppli cautiously predicts that
42
from $31.5 billion in 2007. This will enormous amounts of money in such an the market will turn around in the
mark a second year of decline following undisciplined manner? Scale is one of second half of 2009 due to suppliers’
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the 7 percent drop in 2007. the important elements required to rapid reduction in capacity growth. In
.eur Unfortunately, this decline won’t generate profits. This has resulted in a the near term, iSuppli believes that
oasiasemiconductor
mark an end to the memory sinkhole game of chicken for the past two years. prices will stabilise from the current
just yet. The troubled DRAM market is “The industry’s DRAM bit level, and suppliers’ losses will be
expected to suffer a revenue decline of production growth rate didn’t slow reduced regardless of whether suppliers
4% in 2009 due to global economic down, even with a 48% capital receive rescue packages from other
uncertainty. The figure below presents expenditure reduction this year, parties.
iSuppli’s estimate and forecast of annual showing how much investment already “Until that time, the game of
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global DRAM market revenue. The was made,” Kim said. “This indicates chicken has turned into a game of
three-year decline contrasts sharply with that an additional capital expenditure survival, a situation that will persist for
market conditions in the mid 2000s, cut is inevitable in the near future.” months to come,” Kim said.
square4
Issue I 2009
which delivered growth of 52.9 percent
in 2004 and 35.2 percent in 2006.
“The industry, which has been in
decline for seven straight quarters, is in
a stage of emergency with massive
layoffs and production cuts,” Kim
observed. “The Top 8 DRAM suppliers
have lost nearly $8 billion since 2007,
and their total operating loss is
expected to amount to $11 billion by
the end of next year.”
What’s wrong with the industry
that was one of the most profitable
semiconductor segments just two years
All information kindly supplied by iSupply
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