DRAM is up and continuing to show strength thanks to higher ASPs leading to the second sequential quarter of growth for operating margins, according to a recent report by IHS and summarized by iSuppli. While DRAM manufacturers had struggled through six consecutive quarters of negative operating margins, this year has seen a positive growth of first 11% in 1Q13 and now 27% in 2Q13. These rises are directly related to the ASP climbs of 4% and 12%, respectively for the quarters, as iSuppli reported.
The new face of DRAM market
While the operating margin increases are directly tied to the ASP climbs this year, the ASP rises are similarly owed to another market event, namely the stability that has taken hold of the DRAM market. This stability, as IHS correctly argues, is based in the industry consolidation within DRAM that has left three major manufacturers.
Normally, the issue of manufacturer consolidation might not strike one as a positive event, due to weakened competitiveness and increased concern in the event of a natural disaster or major disruption in the supply chain (see more commentary on M&A activity in semi in our September discussion). However, because of the simultaneous decline in PC demand, the consolidation of the DRAM manufacturing sector should be seen as an appropriate response and a positive situation. That the end result has been two positive quarters during a year that has unquestionably been challenging for the traditional PC sector, is proof positive that the current DRAM supply market situation is healthy and in-check with what the demand market conditions.
PC pressures continue
When it comes to the important end-device sector for DRAM, traditional PCs, the news has not been good. The most recent IDC report for Europe, the Middle East, and Africa (EMEA) brought a mixed bag of news today. For EMEA the news was not positive:
PC shipments in Europe, the Middle East, and Africa (EMEA) declined 16%, reaching 21.4 million units in the third quarter of 2013. Portable PC shipments equaled 13.3 million units, declining 20.6%, while desktop PC shipments hit 8 million units, down 7% compared with the same quarter a year ago.
However, there are some potential silver linings that could possibly (hedges critical) support some positive news:
The market contracted less than in the previous quarter, supported by improving commercial demand, while macroeconomic and political factors affected subregions in different ways. The back-to-school period did not provide much support this year, except in the education sector, as cautious retail fulfillment in light of lukewarm consumer demand and a focus from vendors on tighter inventory led to consumer sales remaining constrained and impacting the total market.
Given the upcoming launch of Microsoft Windows 8.1, as discussed last week, there is additional hope that 4Q13 through 1Q14 might see some PC refresh (finally!) as enterprises consider the best ways to upgrade software that now is not supported on older hardware due to the transition from 32-bit to 64-bit architectures. Additionally, the hybrid line up and drop in price for the Ultrabooks and similar laptops are still seen as possible consumer demand drivers going into the holidays and first quarter. The bottom line, as everyone from economists to industry analysts and journalist continue to point out, is still purely price driven at this macro-economic point in time.
Despite hope for adoption, refresh, and growth from the emerging economies, regional instability, macro-economic uncertainties, and stalling middle class expansions are weighing negatively on the semiconductor and electronics industry hopes presently. Should macro-economic and political stability return to the global market place, it is likely that some of the pent up demand and new spending power expectations could be realized. Meanwhile, we continue to be stuck in that "wait and see" mantra that has dragged on for many quarters now.
Positives from DRAM
Despite the woe found in the PC sector, as discussed, the DRAM market has found the necessary balance for success. As the IHS report notes, the combination of consolidation in the number of manufacturers combined with a tight production strategy has been positive:
While oversupply was a recurring problem in the past, DRAM makers have been at pains to rein in any over exuberance in production. The tight controls have steadied conditions in supply and demand, and the positive margins enjoyed in the first half of the year should continue for the rest of 2013, IHS believes.
The DRAM industry is in fine form and strength at present, a notable turnaround coming from a major bust in 2011 followed by a milder downturn for most of 2012. Even with a languishing PC market, DRAM suppliers are being savvy, and the vastly improved results are telling.