DRAM price plunge to slow revenue growth this year
By Ann Steffora Mutschler -- EDN, January 4, 2007
The DRAM market will reach a milestone this year as it hits the second-highest annual revenue level in its history, at $36.95 billion even though growth will decelerate significantly compared to 2006, due to price erosion rearing its ugly head, according to El Segundo, Calif.-based market research firm iSuppli Corp.
“DRAM revenue in 2007 will be exceeded only by the year 1995, when it reached a record $40.8 billion,” noted Nam Hyung Kim, principal analyst with iSuppli, in a statement. “On the other hand, revenue will rise by only 11.3 percent for the year, far off the pace from the whopping 33.6 percent expansion in 2006.”
The figure below is iSuppli’s global DRAM market forecast:
Source: iSuppli Corp. January 2007
The main reason for the slowdown in revenue growth will be the return of normal price erosion, iSuppli notes. Last year, DRAM pricing weathered abnormal conditions, with the global average selling price (ASP) declining by only 13 percent, far below the historical rate of a 30 percent annual decline.
Pricing conditions will follow normal patterns this year, with the DRAM ASP expected to decline by 31 percent during the year, the firm says.
ASPs in 2006 were propped up by memory makers’ efforts to diversify their product lines into specialty DRAMs designed for non-PC applications, so that even though DRAM bit production growth was at an ample 52 percent in 2006, non- PC DRAM supply growth was much higher than PC DRAM supply growth, resulting in greater price stability in the largest application for the memory.
Further, memory makers shifted production away from DRAMs and toward NAND-type flash.
This year, conditions are expected to be markedly different, with bit production growth expected to amount to 65 percent.
At the same time, seven new 300mm DRAM wafer fabs will ramp up production while NAND market growth will decelerate, slowing DRAM makers’ moves to shift further capacity – all of which will boost DRAM availability and push down pricing, iSuppli believes.
Does this mean that 2007 will bring unfavorable conditions for DRAM suppliers? Certainly not, iSuppli says.
Any year when market revenue exceeds $30 billion should be greatly appreciated by DRAM suppliers. With their margins having risen to healthier levels this year and expected to remain strong in 2007, DRAM suppliers should not be badly hurt by the 31 percent price decline.
While iSuppli foresees less shifting of production from DRAM to NAND in 2007, allocation of manufacturing between the two memory types will be the major swing factor determining the health of the memory market in 2007.
iSuppli doesn’t expect any big momentum changes in the NAND market in 2007. However, upside NAND demand potentially could be a wild-card factor, such as new sales resulting from Apple Computer Inc.’s upcoming flash-based Personal Media Players (PMPs) and its long-awaited iPhone.
However, iSuppli doesn’t believe these factors will alter NAND market momentum in 2007.
With revenue growth slowing in 2007, conditions are shifting in favor of DRAM buyers, giving them more leverage in price negotiations compared to 2006, the firm concluded.
