SANTA CLARA, Calif. -- The business model in the memory sector is broken, prompting the need for more rational behavior and consolidation in the industry, according to an executive at the Memcon technology event here.
The current and horrific memory downturn continues to take a toll on vendors, many of which are losing vast sums of money. And two companies--Qimonda AG and Spansion Inc.--have separately filed for protection under bankruptcy.
What's next? Observers wonder if Taiwan's DRAM makers will go under. Even the bigger players--Elpida, Hynix and Micron--are on the ropes.
Some are expecting a recovery in the memory sector by the fourth quarter of 2009 or first quarter of 2010. Others are not so sure, as demand and average selling prices (ASPs) remains soft.
''The memory business model is broken,'' said Darrell Rinerson, chairman, president and CEO of Unity Semiconductor Corp., a next-generation memory hopeful.
The shattered model is having an ominous impact in the supply chain. Many ''vendors are fighting for survival,'' Rinerson said in an interview at Memcon. ''It is coming down to the mentality (of which memory vendor) will be the last man standing'' if or when the down cycle is over.
For years, the memory business has seen its share of bad cycles. Memory downturns are caused by lackluster demand, soft prices and oversupply.
The current downturn is no different in that respect. Demand has been weak. And in recent times, there was a wave of unrestrained and irrational capacity build-up, especially in Taiwan.
But the current memory downturn is somewhat different than past cycles, Rinerson contended. In the past, the boom cycles enabled vendors to generate an abundance of cash, which would be directed towards new capital and innovative products.
Now, the boom times generate cash, but ''not enough for pay for capital (expenditures),'' he said. ''Vendors don't have enough cash to innovate.''
The outlook, according to the Unity executive, is gloomy. There is no sign that the memory business model can be fixed, as many vendors have fast become debt machines instead of true innovators. Vendors can't escape the vicious debt cycle and the memory business model continues on a ''downward spiral,'' he said.
For some time, semiconductor analysts have urged memory makers to consolidate--and forget about the proposed bailouts--in an effort to restore profitability and sanity in the sector. Vendors must also take a more rational approach to scaling and product pricing, analysts said.
Most of the calls have been directed at Taiwan, but the island's DRAM have refused to consolidate.
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