Databeans revises 2011 global DRAM market projections and overall semiconductor revenue

USA: Databeans announced in October 2011 that it would revise its DRAM forecast down slightly from its previous estimates to $31.5 billion in worldwide sales for the entire 2011 year. This has pulled down the overall semiconductor industry projection which is now $303.5 billion, a 2 percent increase from 2010.

This change has come from weakness in the consumption of consumer and computing devices across all regions which left DRAM suppliers with considerable inventory overstock. Another issue is that DRAM has seemed to reach its limits in the PC space.

Simply stated, further price reductions do not benefit OEMs as the average PC already includes more DRAM than consumers demand. This freeze in consumption means that current stock is not moving and prices of DRAM, especially the industry bellwether DDR3 2GB, have tumbled in recent months. In fact, overall DRAM average selling prices have dropped 17 percent from May to August and are now hovering around $1.73. At this cost, many suppliers are selling the chips at a lost just to move product off their shelves.

As a result, many DRAM supplier revenues have been hurt by the lower gross margins that came from the declines in DRAM prices. For example, in September 2011 Boise, Idaho-based memory chip maker Micron Technology posted a surprise quarterly loss. The firm, which remains the last memory supplier located in the United States, has struggled the declining demand for PC memory chips.

Meanwhile, the company's overseas competitors, which include suppliers like Samsung, Elpida, and Hynix Semiconductor, have also been stung by the DRAM slump, but most of these players have started shifting more of their production over to NAND Flash memory (which is mainly used in growing product categories such as tablets and smartphones) in order to offset the losses experienced in their DRAM units.

The situation has become grim enough that some experts believe that if smaller DRAM makers are to survive this current situation they should either diversify into new products or seek mergers with larger, more established players. This is particularly true for the Taiwanese manufactures, such as ProMOS, Powerchip, and Nanya, which have reported losses over the past few months.

ProMOS, in particular, has lost revenue for 16 straight quarters. This is because they typically face far greater price strains than other suppliers, which is the result of their higher manufacturing costs and more difficult market dynamics. What’s more, leaders like Samsung and Hynix, can take advantage of their leading-edge process technologies and manufacturing facilities.

Despite all of this, the future is not completely dark for DRAM. Because DRAM is so closely tied with consumer confidence, a rebound in consumer driven demand will provide DRAM with a boost as well. As such, Databeans projects a slight decline in global DRAM revenue from 2011 to 2013. However, the market should see a rebound in 2014, which should continue into the following couple years until the end of the forecasted period. As a whole, Databeans expects a compounded annual growth rate of roughly 5 percent over the five-year period spanning from 2011 to 2016.

2011 Worldwide Semiconductor Revenue Forecast by Product TypeSource: Databeans Estimates, USA.