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DRAM Position Likely to Continue Strengthening Trend into 2014

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2013 has been tagged a "recovery year" for DRAM, with inventory alignments coming into good positions that then helped pricing and demand. Importantly, the sluggish supply positions for DRAM coupled with the SK Hynix fire and follow-on shortages were key factors this year in supporting the DRAM recovery. Additionally, demand was helped by increases in mobile DRAM for smartphones and tablet PCs which have begun to more seriously support the DRAM weakness still being experienced due to the fall off in traditional PC sales.

DRAM strengthening

DRAM had a rough few years, and 2013 was the first sign of real recovery after a couple of years of decline in terms of revenue. Again, as Gartner also recently noted, it must be underscored that the strengthening in DRAM we are seeing is primarily due to the inventory controls coming into full play at this point. The very conservative supply strategies have positioned DRAM back into healthy levels and the ability for pricing to recover and strengthen. Throughout the recent few years, a number of consolidations have played a major role in the inventory and supply changes, reducing the number of vendors and affecting the competitive landscape, as well explored by Bolaji Ojo recently in Electronics Purchasing Strategies (EPS). The consolidations has changed the dynamics around the intense competition that had hurt DRAM's strategic pricing positions; all of which occurred during the simultaneous fall in traditional PCs and their high DRAM content.

It is not that we expect to see traditional PCs strengthen, unfortunately not, rather the current supply chain mix of major DRAM manufacturers, current strong inventory and pricing positions, switch-overs to a healthier market mix including mobile DRAM (as noted by DRAMeXchange), and the slow increase of mobile DRAM levels in smartphones (e.g., Apple's iPhones and 2014 expectations), are solidifying DRAM's positive outlook. As Credit Suisse noted in their recent "Korea Market Strategy" research from 9 December 2013, p.21:

One key event in 2014 could be AAPL's decision to finally increase its smartphone DRAM load from 1GB to 2GB, essentially doubling the DRAM density per unit. This is increasingly more likely, since most high-end mobile devices driven by Android OS are moving toward 3GB DRAM standard, while even white box smartphones will likely move to 1GB DRAM standard memory load.

Stability in DRAM sector

As Ojo reported in the EPS article, stability is a key factor that we are seeing in the memory sector overall, but especially in DRAM. This stability in supply has been noted across financial and industry analysts as a critical stabilizing factor for the memory sector overall. The root of this stability comes not necessary in production strategies alone, although lean supply and inventory with maximum control over utilization and capacity have been at play, but critically from the financial constraints that are "naturally" curtailing the growth of a new competitive landscape for DRAM manufacturing. (For more background on the 2013 M&A landscape, see  Smith's MarketWatch Commentary here and the EPS article here.)

Simply put, the costs of market entry at this point are too great for new competitors to enter the DRAM production space because of staggering costs of fabs and equipment to manufacture at the leading edge today. So, today's DRAM manufacturing landscape is likely to stay rather stable and along with that, the ability to continue to supply only at the levels that meet demand while holding in check supply to maintain the healthier pricing levels that DRAM is finally returning to.

Looking forward into 2014, as the recent TrendForce DRAMeXchange report offers, there are five major trends foreseen for 2014 that will positively support the DRAM sector:

  1. 2014 DRAM revenues to rise by 12%, show growth for second consecutive year since financial crisis
  2. Industry to become more profitability stable in 2014 following Micron's official acquisition of Elpida and market’s transformation into oligopoly
  3. Mobile DRAM to officially become mainstream as proportion of PC DRAM declines
  4. Use of 2Xnm manufacturing process to rise in 2014, design difficulties to affect migration progress
  5. DDR4 to be introduced in 2H14 and used in server DRAM first

Lisa Ann Cairns, Ph.D.
Written on Tuesday, 10 December 2013 13:15 by Lisa Ann Cairns, Ph.D.

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