It hasn't been very often the electronics industry has seen the words "stability" and "DRAM" in one statement, but with far fewer DRAM players left in what has historically been one of the most tumultuous of all chip sectors, it appears as though the wide swings in the supply and demand balance are a thing of the past.
Efforts to garner market share are no longer dynamic random access memory (DRAM) companies' primary objectives. Instead of investing billions of dollars to build large fabrication facilities, leading DRAM makers, including Samsung and Micron, are pursuing strategies that will ultimately bring higher pricing, gross margins, and profitability. With increased demand from non-traditional markets, such as smartphones, tablets, networking, and automotive, DRAM sales growth isn't dependent on the health of only the PC market anymore, resulting in greater stability, growth, and innovation.
"DRAM is going to remain stable because you have mature, rationale companies that all understand the market. They all understand the trade-offs and they are going to make the wisest financial decisions," says Mike Howard, DRAM and memory analyst with market research firm IHS. "The end-game for DRAM for years has been if we can get down to three players, everyone will make money."
There's plenty to go around. Worldwide DRAM revenue in 2013 rose 32.5%, to $35 billion, and is expected to increase 19.4%, to $41.8 billion this year, with slower, but still robust growth of just 2%, to $42.5 billion in 2015, according to IHS estimates.
"We expect strong demand for server DRAM and graphic DRAM, as well as consistent growth for the PC and mobile markets, while there is growing need for high-density PCs and LTE-based mobile devices," says Jim Elliott, corporate vice president of memory marketing for Samsung Semiconductor Inc.
Samsung is the market share leader, accounting for 37% of DRAM revenue in the first quarter of 2014, compared with 26% in the first quarter of 2007, according to IHS. The second leading player is SK Hynix, which represented 28% of first-quarter revenue in 2014 vs. 23% in the first quarter of 2007. But the company with the biggest gains is Micron Technology, which came in at 27% in the latest quarter, compared with just 9% seven years ago.
In the first quarter of 2007 the dynamic random access memory market was fragmented.
The first quarter of 2014 shows the big three emerging: Micron, Samsung, and SK Hynix.
For Idaho-based Micron Technology, strong organic growth combined with its acquisition of Elpida Memory pushed the company to one of the top three spots. However, Micron does not plan to expand its wafer growth this year, but instead focus on the value DRAM can bring to a system, according to Brian Shirley, Micron's vice president of memory technology and solutions.
"We are in a better position to engage our expansion plans based on return of capital, a real return rate, as opposed to trying to keep up a certain market share minimum," Shirley says.
This year, Micron is on track to spend between $2.5 billion and $3.2 billion in capital expenditures, which will be used to advance particular process nodes and shrink both DRAM and NAND lithography, he adds. Before Micron decides to bring on additional wafer output, bit demand would have to be consistently above 40%, compared to the current compound annual growth rate in the low 30% range. By focusing on optimizing existing capacity, Micron believes that it can continue to yield healthy gross profit margins, which reached 34% in the second quarter of fiscal 2014 compared to 32% in the first quarter of fiscal 2014 as a result of a higher DRAM gross margin.
In addition, Micron said it expects to see overall DRAM industry wafer production down about 5% in 2014 as the result of DRAM to NAND conversions and the ongoing increase in process complexity as geometries shrink.
However, Micron's die is not as small as its competitors, according to IHS's Howard. "It is not as far along the lithography path as its Korean rivals," he says, adding that the company's costs are a little bit higher. "We'll see if that changes now that they have twice as many wafers as they had 12 months ago."