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DRAM market 1st quarter review
No winner in DRAM “chicken”game
No winner in DRAM “chicken”game
In the dangerous game of “chicken,” two drivers aim their cars at each other and accelerate to full speed. The first driver to swerve is the loser, or the “chicken”.
In the multibillion DRAM industry, market leader Samsung continues to play a high stakes game of chicken, massively boosting its production even as its competitors pull back amid weak market conditions. While this strategy may have helped Samsung avoid the worst effects of a weak DRAM market in the first quarter, it wasn’t enough to allow the world’s leading memory supplier to generate a profit for DRAM during the period. Samsung of South Korea sold $1.8 billion worth of DRAM in the first quarter, giving it a 30.6 percent share of global market revenue, up from 30.2 percent in the fourth quarter, according to a preliminary estimate from iSuppli Corp. While this was 6.2 percent lower than the $1.9 billion in the fourth quarter, the overall DRAM market declined by a more precipitous 7.4 percent during the same period. Samsung also performed well compared to its nearest competitor, Hynix, which suffered an 8.4 percent sequential decline in DRAM revenue. Among the top 10 suppliers, Samsung posted the fourth best performance in terms of sequential sales growth.
“Samsung recently ratcheted up its already aggressive DRAM unit growth target for 2008 to 100 percent, up from the 87 percent level that iSuppli estimated before,” observed Nam Hyung Kim, chief analyst at iSuppli. “Interestingly, Samsung announced its more aggressive unit growth target immediately after iSuppli on Apr. 24 upgraded its rating of near term DRAM market conditions for suppliers to “neutral,” up from the “negative” assessment that had been in place since November 2007. Samsung clearly is trying to intimidate the competition with its game of “chicken.”
However, iSuppli believes that DRAM market conditions now have bottomed out, and there is no further room for declines. If the market hasn’t bottomed out yet, OEM DRAM buyers will encounter major risks of DRAM supply chain disruptions because some suppliers are facing serious financial issues, and potentially could leave the business. DRAM prices are set to rise slightly during the coming months, although industry conditions still will oscillate widely due to short term shifts in the supply/demand balance.
Like Samsung, No. 3 DRAM supplier Elpida Memory of Japan is engaging in an ambitious increase in production, with its megabyte output rising by 33 percent during the first quarter. This caused Elpida’s share of global DRAM revenue to rise to 14.5 percent in the first quarter, up from 13 percent in the fourth quarter. Company DRAM revenue rose to $857 million, up 3.4 percent from $830 million in the fourth quarter.
Elpida and Powerchip were the only suppliers among the Top 10 to increase their DRAM revenue compared to the fourth quarter. With its rise in sales, Elpida in the first quarter managed to close the market share gap with Hynix to only 4.1 percentage points, down from 5.8 points in the fourth quarter.
Global DRAM revenue declined to $5.925 billion in the first quarter, down 7.4 percent from $6.4 billion in the fourth quarter, according to iSuppli’s preliminary estimate. First quarter revenue came in very close to iSuppli’s prediction of $5.999 billion made in its first quarter DRAM Market Tracker report. In the first quarter, no DRAM supplier managed to generate a profit, and losses were larger than expected. However, these enormous losses signal the bottom for the DRAM market prompting the company to upgrade its assessment of short term conditions for suppliers last week. Amid the myriad uncertainties in the market, Samsung will continue to pursue its game of “chicken,” and reap the benefits on its strong balance sheet.
