More DRAM leftovers unless players cooperate

When I was a kid at the dinner table, I had this problem—I always seemed to take more than I had room for and wound up staring glumly at my plate long after everyone else had gone back out to play. In the years since I've grown to adulthood, I've managed to kick that habit. The memory industry hasn’t. For as long as I can remember, the industry has been cyclical, moving through periodic gluts during which the excess capacity sits around like my leftover peas used to.

Only my leftover peas didn't used to drive down prices and hurt everybody at the dinner table.

Adjusting production based on anticipated demand is a tricky business, and it's difficult to adjust fab output once things are rolling. There may be whispers of shortages on the NAND flash front but the DRAM industry is currently plagued by oversupply. And it's a situation that's likely to continue, according to analysts at TrendForce Corp., who predict that supply will outweigh demand in 2013 by as much as 7%, even assuming that Micron and Elpida combined production in the first quarter of 2013. That's going to put a sharp downward pressure on prices.

[Get a 10% discount on ARM TechCon 2012 conference passes by using promo code EDIT. Click here to learn about the show and register.]

Part of the cause is a drop in PC shipments over the second half of the year. Initial projections called for 4 to 5% growth, but that has since been revised to a 2.5% reduction. And the contraction may not be done yet. Meanwhile, new operating systems are not increasing memory capacity requirements to the degree we've seen in the past, and that looks to continue—Windows 8, for example, is considered unlikely to require the kind of memory upgrade that we've seen from other operating systems in the past. Analysts expect an 18% growth in memory capacity per PC to 4.7 GB.

The net result is a 20% decrease in prices for 4 GB memory modules, from $21.5 to $17, which is hovering relatively close to the break-even point. Given the persisting high inventory levels, second-half prices could drop as low as $16. Meanwhile, the contract price for 2 GB modules has dropped by a relatively benign 4.9%, from $10 to $9.75.

There are bright spots, however. Mobile memory is at least headed toward stabilization, slated to outstrip demand in 2013 by just 4%. Certainly, it's not much to brag about but it is an improvement.

After decades of domination, PCs as a memory driver for DRAM are starting to lose steam. According to IHS iSuppli, PC consumption of memory dropped below 50% for only the second time in the past three decades. The memory market is, indeed, heading into a post-PC era. Granted, PCs will still account for the bulk of demand, but the mobile and tablet markets are gaining.

According to the report, despite improvements compared to the situation in 2011, overall market supply still surpasses demand by such a high extent that prices are unlikely to drop enough to return the industry profitability. The reality is that top-tier manufacturers such as Samsung, Micron, and SK Hynix need to join forces for a unified effort in implementing production cuts or the oversupply situation will likely extend into 2013.