Sometimes, it's easy to forget that what's bad news for buyers is actually good news for the industry. DRAM pricing is one such case. Buyers will be disappointed to learn that DRAM price reductions are going to slow down and eventually stall. Chip makers -- DRAM vendors, in particular -- can, for the moment, breathe a sigh of relief.
But that relief looks to be short-lived. The reason DRAM prices are firming up, according to IHS iSuppli, is a lag in migration to newer production technology. That mean chip makers, at some point, are going to have to up the ante.
The DRAM industry has been aggressively pursuing reductions in lithography geometries since 2010. That has allowed manufacturers to produce more DRAMs per wafer. These higher volumes have enabled supply to keep pace with -- and, in some cases, outstrip -- demand. DRAM prices dropped by 14.2 percent in Q1 of this year, says IHS iSuppli, and by 12 percent in Q2. The rate of decrease is expected to plateau to an average of 3 percent to 4 percent until the end of 2012.
DRAM manufacturers have so far been able to remain profitable during this period because of the increased efficiencies they've gained by investing in production technology. But like pricing, that's going to come to an end. Lithography-geometry reduction rates have apparently peaked and are going to begin to decline, according to IHS iSuppli:
Average lithography geometry for global DRAM manufacturing shrunk by a near-term high of 5.6 percent in the first quarter. However, that rate of shrinkage will decrease to 5.2 percent in the second quarter, to 4.8 percent in the third quarter and to 3.7 percent in the fourth quarter. After declining to 2.9 percent in the first quarter of 2012, lithography will shrink in a range of 3.8 percent to 4 percent for the remainder of the year.
“In the wake of forcefully pursuing lithography reductions in late 2010 and early 2011, the DRAM industry is expected to employ a less aggressive approach to lithography migration throughout the rest of the year,” said Dee Nguyen, memory analyst at IHS. “DRAM capital expenditures are expected decline by 30 percent in 2011 compared to 2010. As a result, the rate of DRAM cost reductions also will slow during the remainder of 2011 and 2012.
So at some point, chip makers are going to start investing in manufacturing technology again -- IHS iSuppli says that'll be 2013. So for buyers, prices are going to continue to decline, just not as quickly. The pace may pick up again as chip makers begin a new round of capital spending a couple of years down the line.
I think now the DRAM prices are better and affordable. Even though the component prices are coming down, it’s not reflecting in end products. End product prices are either shooting up or remain the same for last couple of quarters. So I think there would be some proper mechanisms to be in place for pricing, even though component prices are slashing, it is no where accounted in product chain, but increase in component price is directly reflecting also.
One of the ways DRAM makers can increase prices and profitability is to get out of the commodity memory space and into more custom memory. Like any semiconductor product, DRAM is going to experience the bell curve of its lifecycle. Many DRAM makers have already exited older memory products in favor of newer ones.
"These higher volumes have enabled supply to keep pace with -- and, in some cases, outstrip -- demand."
From the manufacturers' point of view, the excess supply seem to be the reason why prices are falling. Despite a reduction in pace, the prices will still continue to fall and that's not so much good news for manufacturers. Is there now way DRAM manufacturers can bring about a reduction in supply so that they can bring the prices up?
You stated that chip prices have fallen 14% and 12% over the last 2 quarters. This being said are we looking at a total of 26% so far this year, or 14% and 12% respectfully based on 2010 pricing? I will be curious to see how the capital investments in new technology affect the future pricing for buyers and ultimately for consumers.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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