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posted on 01 April 2008 07:58

April 1, 2008-Major DRAM suppliers profited from their aggressive expansion in 2005 and this good fortune continued as the price of DRAM kept on going up in 2006.

However, this boom did not come without consequences. This rapid growth in capacity, in addition to an over-optimistic projection on Microsoft Vista's demand for DRAM, has caused numerous industry suppliers much suffering since 2007. First-tier suppliers, who are finding it difficult to squeeze second-tier suppliers out, will see intensified cost pressure.

DRAMeXchange analyst Ken Kuo points out that some DRAM suppliers are still considering the present DRAM depression as a best opportunity to expand their market share. Kuo said: "The DRAM market-share games are now shifting from a knockout to a marathon, without a winner, and the whole business loses."

Driven by the increasing demand in 2006, the upping of DRAM pricing motivated major suppliers to budget increased capex for expansion. Within less than a year, a sharper-than-expected DRAM price fall ocurred, and eroded the profitability of many industry suppliers. For those who lagged behind in terms of process mode, a weak cost structure has led to critical loss.

Pressures from CAPEX and operation, as reflected in shrinking cash in hands (Cash & cash equivalents), prompted some DRAM suppliers to sell marketable securities for cash, or re-rent their 8-inch fabs after sales. As in 4Q07, those DRAM suppliers, which originally had relatively good cost structure, also recorded losses. Given that the cash in hand at these companies is rapidly declining, even those suppliers, who originally were supposed to grab more market share, now feel the pressure and a need to trim their CAPEX in 2008 (instead of aiming at profitability), according to data from DRAMeXchange.

Despite DRAM suppliers adjusting their strategy to preserve profitability, their gross margins are still being seriously eroded and some DRAM suppliers even found ASP edging to variable cost level. While industry players generally interpret a capacity scale back as putting up a white flag in this DRAM race, none of them has made such an announcement.

Kuo points out that some DRAM suppliers are still considering the present DRAM dilemma as a good opportunity to expand their market share. Thus, they still plan for consistent expansion in order to strengthen their production economy of scale and simultaneously expel second-tier. Nevertheless, their plan is not going as well as they have expected, because they are having to either postpone their new fab construction, maintenance, trim headcount cost, or announce bankruptcy to prolong their life in this industry.

If top-tier suppliers' 'perfect game theory' encounters barriers, the nature of competition will shift from a knockout of second-tier suppliers to a marathon. Those first-tier suppliers who are finding it difficult to edge second-tier suppliers out, will see intensified cost pressure. DRAMeXchange believes a better pricing environment will only be possible if these suppliers slow down further expansion and adjust capacity, or everyone loses.

About DRAMeXchange

DRAMeXchange is a leading global provider of market intelligence, in-depth analysis reports and consultant services on major electronics components.

In the year 2000, the company started to deliver market intelligence services under the name of DRAMeXchange technology. This included the current business environment, real-time spot trading prices, market trends, capital spending and wafer capacity trends, the impact of DRAM/flash memory products on the market, and other relevant PC industry information.

About WitsView

WitsViewWitsView is a subsidiary brand of DRAMeXchange, which provides prompt and credible market insights covering the quantitative pricing trend for both TFT-LCD panels and finished goods, industry updates and market intelligence. Founded in 2004, WitsView Technology Corporation is made up of a group of sophisticated industry analysts with years of experience, providing objective and strategic insights on the display industry. Additional information can be found at www.witsview.com.

About LEDinside

LEDinside is a subsidiary division of DRAMeXchange Tech Inc. LEDinside provides LED (light-emitting diode) research to users. LEDinside covers the technology development, market trend, and financial information of the LED industry both on a global and regional basis. Additional information can be found at www.ledinside.com

^{[Formatted by Majid Soltani.]}