DRAM Market as Dangerous, er, Dynamic as Ever

By Tracy Mayor -- Movers & Shakers, 6/22/2006

Razor-thin margins. Precipitously falling prices. Near-chronic oversupply. To many industry watchers, that, in a nutshell, is the perpetual state of the marketplace for DRAM, the essential, if unexciting, memory chips used in the vast majority of desktop and notebook computers.

Well, not that unexciting. In late April, Rambus won a $306.5 million patent infringement case against Hynix which could roil the DRAM market in similar fashion to how NTP tamed the BlackBerry juggernaut. What's for sure is that Rambus will have more leverage now in its legal pursuit of DRAM makers such as Samsung and Micron.To Micron Technology CEO Steve Appleton, those ups and downs are business as usual. As No. 3 in the market for memory, behind perennial powerhouse Samsung Electronics and Korean competitor Hynix Semiconductor, Micron has learned that the key to the DRAM marketplace is to diversify, Appleton says.

Like its counterparts at the top of the market, Micron has in the past year devoted considerable resources to the sexy, high-growth side of the memory market—that is, to NAND flash memory, which is used in MP3 players, digital cameras, USB drives and other hot consumer devices (see flash memory story, p.50). Last November, hoping to capitalize on that growing market, Micron entered into a partnership with Intel to produce NAND chips.

But that doesn't mean that Micron is ready to write off the DRAM side of the memory market, Appleton says, not by a long shot. The company is taking a high/low approach to success in DRAM—offering, on the one hand, higher end (and higher margin) "specialty DRAM" and, on the other hand, continuing to compete in the volume-driven market for commodity DRAM by making as many chips as possible as efficiently as possible.

"The market for specialty DRAM—DRAM that has been customized in some way—is growing rapidly," Appleton says. "Mobile DRAM, low-power DRAM: That part of the market is pretty exciting, and we see it as a high-growth, high-penetration area."

IDC projects that the DRAM market will be valued at $27 billion in 2006, rising to $41 billion by 2010, which isn't exactly explosive growth, admits PC chip analyst Shane Rau. And that data, he points out, comes on the heels of several years that were drastically difficult for memory chip manufacturers. "The years 2001 and 2002 were just terrible, terrible years," Rau recalls.

As unglamorous and volatile as it is, the market for commodity DRAM in 2006 is still where the lion's share of the money is to be made, Rau says. The company that makes the most chips for the least amount of money is the winner, and right now nobody does that better than Samsung. "If you're going to make money in commodity DRAM, you need huge capacity. Samsung has invested heavily in lots and lots of capacity, which means that it can play in the mainstream market and have capacity left over to devote to NAND and specialty DRAM chips."

In the remaining months of 2006, the players are hoping to see an increase in DRAM demand as businesses and consumers buy new desktop and laptop machines in anticipation of Microsoft's long-awaited Windows Vista.

Microsoft recently pushed back the due date of the commercial version of Vista, now not due until January 2007, which caused a temporary drop in stock value for computer OEMs and DRAM manufacturers.

Where some DRAM makers and market watchers are waiting for a Vista-driven jump in demand, Micron's Appleton takes a more pragmatic view. "I don't think it will be the big step-up that some people may be anticipating," he observes. "All of the corporations know that Vista is coming; all of the OEMs want to have Vista-compliant machines ahead of time. I see it more as a gradual increase, a steady rise in demand."

Tracy Mayor is a freelance writer who contributes often to Electronic Business.