Stability at Last in DRAM Market?

A tectonic shift from PCs to mobile devices is remaking the DRAM market, moving a historically volatile business onto firmer, safer ground.

Since the 1980s, the DRAM business has been a high-volume, commodity business, with the lion's share of production going to PCs. Supply and demand were often wildly out of balance. When the PC market boomed, it could cause DRAM shortages, which led to high DRAM prices and led memory makers to increase production. Then the industry would crash as supply caught up with, and then overshot, demand. DRAM makers were living in clover in the good times, and scratching the barrel in others. It was a tough business.

But the rise of mobile devices is changing that cycle. Today's DRAMs fall into one of three major categories: traditional DRAM for PCs (DDR3), DRAM for mobile (low-power DDR2), and specialty DRAM, manufactured for higher performance in particular niches, according to Michael Howard, senior principal analyst, DRAM and compute platforms, at IHS Corp. These three are generally not interchangeable; you can't use PC DRAMs in smartphones and tablets.

And demand for mobile DRAM is rising fast. Smartphones sales surpassed PC demand in the fourth quarter of 2011, according to market research firm Canalys. IDC has predicted that mobile devices as a whole will outsell PCs by more than two-to-one this year. As of the second quarter of 2012, PCs accounted for less than half of the market for DRAM, the first time its share has ever fallen below 50 percent, according to IHS. “The decline in DRAM share for PCs appears irreversible,” said the company in a report, predicting that it will fall from 49 percent in second quarter of 2012 to 43 percent by the end of 2013.

It's already making a difference in who has survived the brutal DRAM market of the last few years. Mobile DRAM and specialty DRAM are not commodity products, so companies that make them, in addition to traditional DRAM, have had more stable pricing. “Mobil DRAM is built to order,” said IHS's Howard during an interview with me. “Prices are negotiated on a quarterly basis.” That means production is more likely to meet demand, and to generate higher margins for memory vendors.

By the end of next year, the DRAM industry will have shrunk to only three major players, says Howard: Samsung, SK Hynix, and Micron. While there are other DRAM makers, they don't own the technology and have to license it from these three, he notes. The DRAM manufacturers in Taiwan, for example, are still hanging on. “They just refuse to go out of business.”

The DRAM vendor in the best position is Samsung, which has about 40 percent of the overall DRAM market and 60 percent of the mobile DRAM market, according to Howard. It also has a stable customer — itself, in Samsung Mobile. Hynix SK has 22 to 24 percent of the overall DRAM market and 22 to 24 percent of the mobile DRAM market. Micron historically had about 13 percent of the overall DRAM market and only 4 percent of mobile DRAM. It is fixing that by acquiring Elpida, which has about 20 percent of the mobile DRAM market.

With the right balance of PC DRAM, mobile DRAM, and specialty DRAM, these companies should be in a more stable market. All three of them also make NAND flash as well. And even though NAND is made in different fabs, “if they feel there's way too much capacity in DRAMs, they could transition those fabs to produce NAND,” according to Howard.

In some ways, the NAND market has the elasticity of the old DRAM market, in the sense that OEMs can always stuff more memory into their products. That's particular true for the solid-state drive market, notes Howard. On the other hand, the mobile device market doesn't have that flexibility. Once a smartphone or tablet is designed, it's not so simple to just add more NAND memory.

Nevertheless, “the elasticity component of the DRAM market is shrinking [as the PC market shrinks], whereas the elasticity component of the NAND market is growing.”

Taken together, these factors should help the remaining memory companies build a better business future. “They aren't out of the woods yet, but long-term I think the industry is going to be a lot healthier,” Howard adds. By 2014, “we anticipate this being a tidy, profitable industry.”

8 comments on “Stability at Last in DRAM Market?

  1. Barbara Jorgensen
    November 12, 2012

    This sounds like a pretty good argument for stability. While it is always fun on the outside to look at the wild swings of DRAM market, it can't be fun for buyers and manufacturers. A stable anything in this marekt is a welcome break form volatility.

  2. Shelly
    November 13, 2012

    Looking at the overall market, it is a centain trend of mobile DRAM market increasingly accounting for more shares of the whole DRAM market due to the rapid development of smartphone and Tablet PC, but with more manufacturers participate into the mobile DRAM market, overcapacity may also occurs, just like the distribution industry. The key is whether the several major mobile DRAM manufacturers can maintain their market shares and the market situation.

    November 13, 2012

    It is interesting that you reckon there will only be 3 suppliers soon and that the mobile demand is outstripping PC. I also welcome anything that can stabilize the DRAM market (except more expensive parts of course).

  4. bolaji ojo
    November 13, 2012

    Barbara, OEMs haven't always complained about the instability of the DRAM market. They've arguably benefitted more than suppliers from the volatilityof the market because pricing has been largely favorable for them while shipment hasn't suffered. In fact, through the ups and downs, unit shipment of DRAMs have increased as consumption has always been on the rise.

    Having fewer suppliers isn't something OEMs like and somehow they'll entice the smaller players into staying in the game.

  5. bolaji ojo
    November 13, 2012

    Tam, I would like to share your optimism that instability may be coming to an end in the DRAM market but the market's history stops me from going that far. Vendors would like to have fewer competitors and you are right that the market may be consolidating around three companies but the bit players won't go away. They won't because OEMs won't let them.

    OEMs don't like having fewer choice of suppliers. As the market bounces back (as a result of the consolidation) and prices firm, more suppliers will dive in and OEMs will encourage them to drive down prices. That cycle will inevitably return.

  6. bolaji ojo
    November 13, 2012

    I'll answer your question. No. Memory makers won't be successful at defending market share and keeping others out. This is a competitive market and when it succeeds in tamping down on supply and pushing up pricing, the small players also experience a boom and the cycle starts all over again.

  7. Barbara Jorgensen
    November 13, 2012

    Bolaji: That is certainly true. More often than not the swing was toward lower prices. But didn't that usually lead to hoarding? Then the hoarding led to shortages, which led to manufacturing ramp up, which led to oversupply, lower prices, and more hoarding…? If prices eroded downward during each of these cycles, I guess it makes sense.

  8. Tam Harbert
    November 14, 2012

    Bolaji – interesting point and you're probably right, I think. It will be interesting, though, to see whether the current struggling companies (in Taiwan) will remain, or whether there will be new entrants who recognize and can take advantage of some of these changes in the DRAM market. Can anyone name a “new” DRAM vendor?

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