SAN FRANCISCO—Last week's bankruptcy filing by Japan's Elpida Memory Inc. should work in favor of other DRAM vendors, reducing supply and boosting average selling prices (ASPs) and revenue in the second half of 2012, according to market research firm IHS iSuppli.
If more than 25 percent of Elpida’s manufacturing capacity is taken offline, the global ASP for all DRAM shipments is projected to rise to $1.21 by the end of 2012, up 15.5 percent from $1.05 at the end of the first half of the year, according to the IHS iSuppli's memory and storage service. Without such a reduction in capacity, pricing would rise to $1.13 at the end of the year, up just 8.5 percent from the price at the end of the first half, according to the firm.
Elpida filed for bankruptcy last week, blaming in part falling DRAM ASPs and failure to win a second bailout from the Japanese government. There is no indication at this time how much of Elpida's capacity could ultimately be taken off long through a bankruptcy restructuring.
"A meaningful reduction in Elpida’s manufacturing will cause the DRAM market to go into a state of undersupply, causing prices to increase," said Mike Howard, senior principal analyst for DRAM and memory at IHS, in a statement. "Shipments likely will decrease because of the Elpida bankruptcy, even though the resulting increase in revenue—driven by higher prices—will cause the market to perform better than expected in 2012."
Howard said the ultimate fate of Elpida’s manufacturing assets will be the major factor impacting pricing and revenue growth in 2012. "But one thing is certain: Elpida’s bankruptcy means the remaining DRAM players can look forward to a much rosier 2012 than they did just one week ago," Howard said.
In January, Handel Jones, founder and CEO of International Business Strategies Inc. (IBS), predicted that one or two DRAM vendors would file for bankruptcy this year. Also in January, Brian Matas, vice president of market research at market research firm IC Insights Inc., predicted consolidation among DRAM players, speculating that the increasing costs of production will cause some weaker players to drop out of the market and curb the over expansion that creates the boom and bust cycles that have plagued DRAM from the beginning.
IHS said it conservatively estimates that 2012 DRAM revenue will exceed $30 billion, up from a previous forecast of $24 billion. The firm reported that spot prices for DRAM jumped by more than 15 percent the day that Elpida filed for bankruptcy, adding that the increase was likely a preview of what would happen in to contract prices later this year.
IHS said, though there has been concern over the health of Elpida, the suddenness of the firm's Feb. 27 bankruptcy filing took many in the industry by surprise. Elpida has long been one of the leading forces in the memory market and is the last remaining DRAM maker headquartered in Japan, IHS noted.
IHS also noted that the bankruptcy filing does not necessarily spell the end of manufacturing for the company. Production has not ceased at its manufacturing facilities, and its engineers, salespeople, marketers and corporate strategists remain on the job, searching for a path forward, IHS said.
But the company is likely to look very different on the other side of bankruptcy, according to IHS. Not only will the company have to deal with its massive debt load or more than $5 billion, it also must deal with the challenges of manufacturing in the high-cost regions of Japan, IHS said. There is a chance that it could mean the end of Elpida's days as a DRAM maker, IHS said.
"If all of Elpida’s fabs—such as its Hiroshima facility—cease making memory permanently, then the chronically oversaturated DRAM industry may finally reach a state of supply/demand equilibrium,” Howard said. “While it’s unlikely that all of Elpida’s production will disappear, this development could mark a new era for the DRAM market—one marked by stronger pricing power for suppliers.”
Many existing Elpida customers during the coming months will seek alternative suppliers to secure DRAM products, IHS said. Every DRAM company likely will gain market share as customers seek reliable alternative suppliers, with Micron Technology Inc. and Nanya Technology Corp. expected to realize the greatest gains, IHS said. Because Samsung Electronics Co. Ltd. and Hynix Semiconductor Inc. are the largest DRAM suppliers, most customers are probably already using them and would turn to Micron and Nanya as alternative sources, IHS said.
I agree- companies can come back from bankruptcy leaner, stronger and ready to turn things around. The problem here, as I see it, is there are simply too many players in DRAM. Just as Elpida's bankruptcy could stabilize pricing and lead to higher DRAM sales, if Elpida comes back with guns blazing (and all fabs), the industry will be right back in oversupply, and the same factors that worked against Elpida will work against it (and its competitors) all over again. DRAM is not a business for the faint of heart.
Not sure what "bankruptcy" means at the end of the game. We have seen that in the US auto industry. The companies use this to get a cushion, to slim-down and restructure; people (vendors and customers) will re-gain confidence and the company comes back up. Just can't see another Qimonda here because economy is in a much better shape.
The spot price went up the day of the bankruptcy partly because of shock/panic. People are understandably nervous about buying from Elpida, a supplier with an uncertain future, and looking to secure deals with other suppliers. IHS is projecting further price stabilization after tough decisions are made about Elpida, including reduction of manufacturing assets.
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