|
Memory chipmakers return to immature ways, scolds IC Insights! |
|
|
|
Apr 05, 2007 at 02:41 PM |
 A big slap on the wrist and a verbal scolding was metered out by IC Insights' market analysts in April's edition of the McClean Report. The research firm scolded both
NAND and DRAM manufacturers over current over-capacity issues due to the high levels of capital spending and new fab construction undertaken in the last year, which that is set to continue in 2007.
After years of rational consolidation in the DRAM sector, IC Insights believed that this volatile sector had become more mature, often taking two steps forward and only one step back from time to time. Indeed, 2006 was a very good year for the DRAM market, growing by 32 percent due to a balanced combination of unit volume growth (13 percent) and ASP increase (17 percent), IC Insights noted.
Apparently, that has all stopped with the sector taking one step forward and two back, setting the sector back by 10 years, according to the market research firm.
IC Insights' rationale is based on the significant capital spending being seen in the DRAM sector. Capital spending as a percentage of sales was 41 percent, almost twice the 2006 industry average!
What makes this worse according to the market research firm is that all ten major DRAM manufacturers are expanding production in the mistaken belief that they will capture 15-20 percent marketshare and secure the critical mass that should sustain business operations. This simply will not happen and, as far as IC Insights is concerned, will lead to tears for many!
Though IC Insights didn't indicate which memory manufacturers it believed would suffer the most, it did highlight key spending habits of the guilty.
Powerchip was singled out for capital spending of $2.6 billion in 2006 that resulted in spending as a percent of sales topping 92.3 percent! The figures look even more compelling when one is made aware that Powerchip spent only $600 million in 2004 and $1.3 billion in 2005.
Another Taiwan-based second tier DRAM producer, Nanya, was noted by IC Insights for capital spending plans this year that, as a percent of sales, is expected to be close to 100 percent! Nanya is currently ramping its first 300mm fab and is expected to spend $2.4 billion in 2007. Contrast that with spending of $439 million in 2005 and $910 million in 2006, and the picture becomes clear as day!
Even Elpida, Japan's last remaining DRAM manufacturer, saw capital spending as a percent of sales climb to 36 percent in 2006. It has also raised over $1 billion only very recently for more fab expansion in 2007.
IC Insights' scorn was not limited to DRAM manufacturers. It was noted that capital spending surged 18 percent to $54.75 billion in 2006, while capital spending on flash memory capacity grew by 35 percent, reaching $11.5 billion.
According to IC Insights, flash memory spending as a percent of flash sales reached 57 percent in 2006, more than 2.5 times the industry average! ASPs fell 18 percent in 2006 and should fall another 15 percent in 2007, IC Insights said.
Both Micron and Toshiba were red flagged over NAND flash capital spending. Micron, it was noted, plans to spend $4 billion on ramping several 300mm fabs for NAND flash production in 2007, while Toshiba continues to ramp 300mm fabs aggressively. This less mature market and aggressive spending habits are unsustainable and will lead to consolidation, according to IC Insights.
|
News 
