DRAM revenue in 2007 declined to $31.5 billion, down from $34 billion in 2006, according to market research firm iSuppli Corp. In the fourth quarter of 2007, DRAM revenues declined 19 percent to $6.5 billion, down from $7.97 billion in the third quarter, with sales down 40 percent compared to the fourth quarter of 2006. ASPs dropped 31 percent in the fourth quarter. 

The ASP drop was partly the result of a 17 percent increase in megabyte DRAM unit production, which contributed to a glut in the market, iSuppli said. This was in contrast to DRAM unit production rising by only 9.7 percent in the third quarter, and a typical increase of 10 percent on a sequential quarterly basis.

“There’s a lesson to be learned from the fourth-quarter DRAM disaster: In this game of upping the production ante, no supplier wins—and the entire industry loses,” said Nam Hyung Kim, Director and Chief Analyst, memory ICs/storage systems for iSuppli.
“Tier-one DRAM makers can generate profits more than the industry average when the industry is healthy—and only when supply and demand are in a reasonable state of balance. Rather than pursuing a scorched-earth policy of ramping up production to gain market share, tier-one DRAM suppliers should try to return to profitability by rationalizing supply growth.”

Kim also noted that profits over market share would be a wise decision sooner rather than later as he believed the DRAM industry needs to find more than $100 billion per year to keep growth rates growing, while at the same time securing capital investments for migration to the 450mm wafer size beyond 2015!

“iSuppli believes that the memory industry by 2020 will need to spend more than $100 billion per year just to maintain present rates of growth,” Kim said. “This is because the new generation of 18-inch wafer fabs beyond 2015 will cost a fortune—at $10 billion per fab. The industry needs to consider how to shift its competitive strategies in order to generate sufficient profitability to support this kind of growth.”

“No matter how you look at it, 2007 was a disastrous year for the DRAM business, due to suppliers’ market-share and capital-spending games,” Kim said. “However, the industry now is undergoing a rebalance of supply and demand. iSuppli believes industry profitability will be better later this year. However, this will take more time than suppliers anticipated early in 2007, when they started boosting their unit production.”

The problem for the DRAM industry is oversupply and a focus on market share gains.

“Until the suppliers change their ways, this naïve game of scale will continue to cost the DRAM industry every year,” Kim said.