The following column was provided by Nam Kim, a senior analyst with iSuppli Corp., an El Segundo, Calif.-based market research firm.
Intel Corp. continued its drive to promote Double Data Rate 2 (DDR2) DRAM with a $450 million investment in memory-maker Micron Technology Inc. (see September 24 story). A portion of the investment money will go to developing DDR2. This marks the second such investment in recent times for Intel, following a June deal with Elpida Memory Inc.
Intel's goal in promoting DDR2 is to gain a greater share of the high-end PC market by moving to a faster memory architecture. The company's only significant rival in PC microprocessors, Advanced Micro Devices Inc. (AMD), has not issued a plan to support DDR2 yet.
Intel's investments in Micron and Elpida remind iSuppli of the microprocessor giant's efforts to promote support for Rambus DRAM (RDRAM) a few years ago. At the time, Intel invested large sums in various DRAM makers to promote production of RDRAM in support of the company's new Pentium 4 microprocessor. However, this effort eventually failed, as RDRAM did not significantly penetrate the DRAM market, and was quickly eclipsed by DDR.
However, iSuppli believes Intel stands a better chance of success this time. Unlike RDRAM, DDR2 is a standard technology, giving more flexibility in manufacturing to OEMs and suppliers.
Intel already has garnered significant support for DDR2 among the DRAM suppliers; memory suppliers at the Intel Developer Forum (IDF) this month all said they were ready for DDR2. Samsung, Micron, Hynix, Infineon and Elpida presented very similar DDR2 roadmaps, all of which closely corresponded with Intel's timeline for the rollout of chipsets that support the next-generation DRAM.
Intel believes that DDR2 demand will begin ramping up in 2004. However, iSuppli predicts it will take much longer before DDR2 demand exceeds that of the present mainstream DRAM: DDR. Based on iSuppli's latest forecast, DDR2 demand crossover with DDR won't occur until the second half of 2005. On an annual basis, 2006 will be the first year when bit shipments of DDR2 will exceed those of DDR.
iSuppli forecasts DDR2 will capture only 7 percent of the market in 2004, and will grow to 35 percent in 2005.
A major factor slowing the acceptance of DDR2 is the fact that Intel announced that its new DDR2 chipsets will support both DDR and DDR2. This will prevent suppliers and OEMs from rushing into DDR2, since they have the less-risky option of supporting the well-established DDR SDRAM instead.
Furthermore, 256-Mbit DDR SDRAM will have longer lifespan than some observers may expect due to Intel's dual-channel support. Unless customers need 1-Gbyte of DRAM on their systems, the 256-Mbit density chip is more than enough to support 512-Mbytes of DRAM per system.
According to Samsung's and Hynix's presentations at IDF, DDR2 will carry a production cost overhead of about 10 percent at the 0.1-micron process and at the 512-Mbit density. The 10 percent overhead, along with additional packaging and test costs, will represent a considerable initial burden to suppliers. This is the most critical issue relating to production of DDR2 for suppliers.
Because of these factors, DDR2 adoption will not be as fast as Intel wishes.
In order to promote DDR2, Intel said that DDR400 will not have much of a future except in high-performance desktop PCs. Intel has not released a chipset for notebook computers that supports DDR400. Not coincidentally, none of the DRAM suppliers in their presentations at IDF indicated that there would be any market for DDR400 for notebooks.
However, SIS and VIA already have launched chipsets that support DDR400 for notebook computers. ISuppli believes DDR400 demand for notebooks will appear next year, although the mainstream memories will be DDR266/333.
iSuppli forecasts that DDR400 will have a longer life. although Intel will release DDR2 chipsets for all computing platforms, i.e. desktop, notebook and servers, next year.
Suppliers have ramped up DDR400 production. However, demand has not ramped up, decreasing the DDR400 price premium over time.
The slow transition from DDR to DDR2 is not a good thing for the industry, iSuppli believes.
Historically, DRAM bit prices have decreased constantly. The introduction of new technology and higher-density parts counteracts this dynamic by temporarily boosting overall DRAM prices"and the revenues of suppliers.
The DRAM market in 2002 and 2003 underwent a density crossover from 128-Mbit to 256-Mbit and a technology transition from SDRAM to DDR. However, there won't be any kind of crossover in 2004.
DDR DRAM at the 256Mbit density will continue to be the mainstream DRAM, barring the introduction of any ground breaking technology. Therefore, bit demand will be the major driver of growth in the market.
Based on its present PC unit forecast for 2004, iSuppli is still cautiously optimistic about a 2004 DRAM market recovery, despite the lack of a technology or density transition.
In other DRAM news, suppliers failed to increase contract prices for the second half of September, as expected. Meanwhile, spot market DRAM prices are standing still.
Nam Hyung Kim can be contacted at the following email address: firstname.lastname@example.org