According to market research firm, IHS iSuppli the overall semiconductor industry days of inventory declined slightly in the third quarter of 2011, while DRAM stockpiles increased significantly. As calculated by the days of inventory (DOI) measure, overall semiconductor stockpiles in the third quarter stood at 81 days, down 2.5% from 83 days in the second quarter but DRAM stockpiles stood at 12.8 weeks, a 31% increase from 9.8 weeks in the second quarter of 2011. The figure is also significantly higher than the long-term quarterly average of 9.2 weeks.
The market research firm believes that the DRAM inventory index could continue to rise for a few more quarters, worsening an already bad situation and is reminiscent of the DRAM industry collapse of 2008.
“The surge in inventory exacerbates the travails of the steadily deteriorating DRAM market,” said Clifford Leimbach, analyst for memory demand forecasting at IHS. “DRAM suppliers are suffering from a multitude of market-depressing factors including the lack of worldwide demand, the arrival of new applications needing less DRAM, and operating systems that do not require an incremental increase in DRAM as previous versions did.”
Other than weak demand, DRAM ASPs fell dramatically in Q311 forcing manufacturers to increase output to support revenue generation, aggravating a worsening inventory situation.
“Should expectations arise that the economy might be headed for improvement—the belief alone is sufficient—things could rapidly improve,” Leimbach said. “An example of heightened expectations very quickly reversing the downward path of the DRAM market occurred in 2009, when the Inventory Index recovered from a beleaguered 14 weeks to a desirable six weeks in the space of just three quarters.”
However, the market research firm isn’t holding its breath of a turnaround. It noted that that DRAM revenue slid to slightly more than US$6 billion in the fourth quarter of 2011, down 11% from the third.
Also noting that it would appear “unlikely that the downward trend on operating profits will subside—which means that there will be little respite for the many DRAM companies already operating at, or below, cash costs. All told, the historical trajectory illustrates that the worst is yet to come.”
Reports are already circulating over financial problems at Elpida and that smaller firms will struggle against the cash rich Samsung that is able to ride-out downturns better and generate better margins as it invests in leading-edge equipment before rivals.