Total DRAM revenue decreases by 19.4 percent in 3Q, Samsung alone sees climbing market share of nearly 45 percent

TAIWAN: According to DRAMeXchange, a research department of Trendforce, total revenue for the worldwide DRAM industry was approximately $6.566 billion in 3Q11. Affected by a weak macroeconomy and an increasingly severe oversupply situation, average contract price for DDR3 2Gb fell by 35 percent in 3Q, and the total revenue decreased significantly, by 19.4 percent QoQ. With the exception of Samsung, all DRAM makers were in the red for 3Q, and the DRAM industry is officially headed into another bleak period.

From the supply perspective, in 3Q a portion of DRAM manufacturers made production cuts as chip price fell below cash cost; thus, production volume increased by only 5 percent QoQ, compared to the historical average of over 10 percent QoQ growth for 3Q. However, first-tier DRAM makers continued to adopt 30nm/40nm node processes. For instance, 30nm products from the two major Korean makers already accounts for 21 percent of total industry output, and Elpida, with support from subsidiary company Rexchip, is expected to increase their 30nm output in 1H12.

However, Taiwanese manufacturers are still producing mainly on 40nm/50nm technology, representing at least a generation and a half of lag behind Korean DRAM makers. Taking the currently bleak market status into consideration, it is highly unlikely that DRAM manufacturers turn profitable again in the near future.

As for demand, the weak macroeconomy has lowered consumer confidence in European and US. markets. The historical 3Q average of 10 percent demand bit growth was not met this year, with only 7.6 percent QoQ growth in 3Q11. Furthermore, PC growth was mainly attributed to China and other emerging markets, and total PC content per unit has not increased significantly in 3Q.

The overall notebook (excluding netbooks) content per unit was only 3.5GB, a slight increase of 1.1 percent QoQ. Luckily, benefitting from PC OEMs’ September inventory restocking in preparation for the holiday season, DRAM inventory levels have decreased significantly; even spot price stabilized temporarily in 1HSep.

As a result, 4GB contract price decreased by 2.33 percent in October, and other prices stayed flat. The DRAM price trend in 4Q will depend on the impact of the Thailand flood-induced HDD shortage on PC shipments.

Global DRAM manufacturers’ branded DRAM revenue ranking
As for global DRAM manufacturers’ branded DRAM revenue ranking, the Korean makers took first and second place as usual. Samsung’s 3Q DRAM revenue fell by 12.8 percent QoQ, but as this decrease was less than that of other makers, their market share was up 3.4 percent, for a total of 44.5 percent of the market.

DRAM ASP decreased by approximately 15 percent QoQ. Benefitting from having over 30 percent of their output from 35nm processes as well as capacity allocation to sever and mobile DRAM, Samsung turned in impressive figures for the quarter, with bit growth at 7 percent and operating profit over 20 percent in 3Q.

As for Hynix, their DRAM revenue decreased 23.9 percent QoQ, and market share decreased slightly to 21.6 percent. The severe DRAM price decline resulted in a 3Q deficit for Hynix, who had shown profits for the past nine quarters. Hynix’s DRAM operating profits were -25 percent. Looking toward 4Q, as yield rate is stable for the 38nm process, the company is aggressively increasing wafer start volume; 38nm products are expect to account for 40 percent of total output by the end of 4Q. As cost continues to be reduced, Hynix’s profits are likely to improve.

Since Japanese maker Elpida has a high proportion of spot market products, the spot price affected the company significantly. As DDR3 2Gb spot price fell by 37 percent in 3Q, Elpida has cut Powerchip’s purchasing volume significantly since August. Thus, their PC DRAM output comes solely from subsidiary company Rexchip, overall branded chip output fell by 4 percent QoQ. Elpida’s total revenue for 3Q was a mere $825 million, representing a 29.7 percent QoQ decrease, and market share was approximately 12.6 percent.

At their IR conference, Micron revealed that their bit growth for 3Q was 22 percent, but as DRAM price fell by more than 28 percent in the same quarter, their revenue decreased by 11.9 percent QoQ and market share was 11.8 percent. Thus, the company went from profitable to showing losses.

As for technology migration, the proportion of 42nm output hit 50 percent at the end of 3Q, and is likely to reach 70 percent by the end of 2011. However, as 42nm process chips’ cost structure is unprofitable, if Micron hopes to increase revenue they must put their efforts towards migration to the 30nm node. Lagging more than a generation behind the Korean makers will be detrimental to their profitability in the long run.Source: DRAMeXchange, Taiwan.

As for Taiwanese DRAM makers, as Nanya is more than a generation behind the major manufacturers and their output is mainly PC DRAM, the company was severely affected by the DRAM price decrease in 3Q. Nanya’s revenue was $243 million, representing a 36.9 percent QoQ decrease, and market share fell from 4.7 percent in 2Q to 3.7 percent. If DRAM price continues to fall, Nanya’s profits are likely to decrease further.

Currently, the makers are engaging in small-scale test production on the 37nm node, and are expected to enter mass production in 1H12. With regard to Winbond, benefitting from their withdrawal from the commodity DRAM market to focus only on highly profitable specialty DRAM, the DRAM price decrease had less of an impact on the manufacturer. However, as the market was weak nonetheless, Winbond’s revenue decreased by 12.2 percent QoQ, and market share was at 2.2 percent, mainly attributable to the significant decrease of mobile DRAM proportion, from 25 percent in 2Q to 16 percent in 3Q.

As for ProMOS, they were still unable to purchase raw materials due to insufficient funds, and wafer start volume remained at approximately 10K per month. The maker’s revenue continues to decrease, and market share has officially fallen below 1 percent.

Branded DRAM market share by region
Looking at branded DRAM market share by region, Korean makers took 67.9 percent of the market due mainly to Samsung’s strong growth. US manufacturers’ market share increased slightly to 12.1 percent, while both Japanese and Taiwanese makers’ decreased revenue caused market share to fall to 12.9 percent and 7.1 percent, respectively.

As a portion of Taiwanese DRAM makers have cut DRAM capacity, the drop in Taiwanese makers’ market share is more noticeable. In summary, Korean manufacturers continue to dominate the market with their continued expansion.(Figure-2)Source: DRAMeXchange, Taiwan.